liiiiiiiiiiw 


A  PLEA   FOR    THE 
MERICAN    FARMER 


3tCK   T.    MORGAN 


THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


GIFT  OF 


Gift  U.C.  Lidrs-v 


LAND  CREDITS: 
A  PLEA  FOR  THE  AMERICAN  FARMER 


LAND  CREDITS: 

A   PLEA  FOR  THE 
AMERICAN  FARMER 


BY 

DICK  T.   MORGAN 

Represektative  raoM  Oklahoma  in  the  61st,  62kd,  63rd 
A.vD  6irH  Congresses  of  the  United  States. 


NEW  YORK 

THOMAS  Y.   CROWELL  COMPANY 
PUBLISHERS 


Copyright,  1915 
By  Dick  T.  Morgan 


'  Us  MIS 


To 

My  Wife 

ORA 


Cl-^Oi  Q^f.% 


PREFACE 

Evert  one  who  attempts  to  write  anjrthing  for  publica- 
tion in  book  form,  should  have  some  excuse  for  so  doing. 
In  my  early  manhood,  I  removed  from  my  native  State, 
Indiana,  to  Western  Kansas,  where  I  resided  for  about 
four  years.  I  have  lived  in  Oklahoma  since  its  birth,  April 
22,  1889.  Thus,  for  nearly  thirty  years,  I  have  lived  in  a 
new  country,  where  capital  was  comparatively  scarce,  and 
interest  rates  were  high.  Through  the  favor  of  the  voters 
of  the  "  old  second  "  and  the  "  new  eighth  "  Congressional 
districts  of  Oklahoma,  I  have  been  four  times  elected  a 
Eepresentative  in  the  Congress  of  the  United  States.  I 
represent,  in  part,  a  great  agricultural  State.  The  vast 
majority  of  my  constituents  are  farmers.  Oklahoma 
has  made  wonderful  progress.  Her  future  is  bright 
with  promise.  With  all  her  immense  mineral  wealth, 
agriculture  will  always  be  her  chief  industry.  To- 
day, inadequacy  of  farm-credit  facilities  impedes  her  agri- 
cultural development.  High  interest  rates,  as  I  honestly 
believe,  impose  an  unjust  and  an  unnecessary  tax  upon  her 
farmers.  Primarily  my  object  in  writing  "  Land  Credits  " 
is  to  serve  my  constituents  who  have  trusted  and  honored 
me,  and  to  aid  the  great  young  State,  which  I  am  proud 
in  part  to  represent.  However,  I  recognize  that  as  a  Eep- 
resentative in  Congress,  in  cooperation  with  my  colleagues 
in  the  House,  I  represent  in  part  the  nation  at  large.  I 
hope  even  that  "  Land  Credits  "  may  be  a  means  whereby 
I  will  discharge  a  duty  I  owe  to  all  my  countrymen. 

When  the    Sixty-third   Congress   adjourned,    March   4, 
1915,  I  was  confronted  with  a  situation  entirely  new  to  me. 

vii 


viii  Preface 

Apparently  I  had  nine  months'  vacation  in  sight ;  for,  bar- 
ring an  extra  session.  Congress  would  not  meet  again  until 
December  6,  following.  Farm-credit  legislation  had  been 
conspicuous  before  the  Sixty-third  Congress.  The  whole 
subject  was  postponed  for  the  action  of  the  Sixty-fourth 
Congress. 

I  was  disappointed  in  the  recommendations  of  the  Com- 
missions which  went  abroad  to  study  Eural  Credits  and 
I  had  reached  the  conclusion  that  Congress  should  not 
enact  into  law  the  Commission  Bill,  the  Sub-committee 
Bill,  or  the  Senate  Committee  Bill.  I,  therefore,  decided 
I  could  best  serve  my  constituents,  my  State,*  and  my 
country  by  devoting  the  greater  part  of  my  vacation  to 
the  further  study  of  the  principles  of  land  credit,  and  in 
preparing  the  result  of  my  investigations  for  publication 
in  book  form. 

In  my  work,  I  have  had  access  to  all  the  information 
available  at  the  National  Capital.  To  establish  the  facts, 
I  have  quoted  chiefly  from  the  following  works :  "  Agri- 
cultural Credit  and  Agricultural  Cooperation  in  Germany," 
by  J.  K.  Cahill,  printed  as  Senate  Document  No.  17,  Sixty- 
third  Congress ;  and  from  "  Agricultural  Cooperation  and 
Eural  Credit  in  Europe,"  being  the  report  of  the  United 
States  and  American  Commissions,  printed  as  Senate  Docu- 
ment No.  21-i,  Sixty-third  Congress.  I  have  obtained 
much  information  from  the  study  of  "Rural  Credits"  by 
Hon.  Myron  T.  Herrick,  and  hereby  express  my  thanks 
to  him  and  his  publishers,  D.  Appleton  &  Co. 

I  am  fully  aware  that  this  volume  is  not  an  exhaustive 
treatise  of  the  subject.  It  is  with  reluctance  that  I  turn 
the  manuscript  over  to  the  publishers  —  knowing  full  well, 
that  with  further  time,  much  of  value  could  be  added. 
Nothing  I  have  said  in  this  volume  is  intended,  in  any 
way,  to  reflect  upon  the  able  gentlemen  who  comprise  the 
United  States  and  American  Commissions,  or  upon  the 
distinguished  Senators  and  Eepresentatives  in  the  Sixty- 


Preface  ix 

third  Congress,  who  were  members  of  the  Senate  and  House 
Committees  on  Banking  and  Currency,  and  the  Sub-com- 
mittees of  the  two  Houses  on  Eural  Credits.  I  have  no 
doubt  they  have  reached  their  conclusions  honestly.  All 
who  are  familiar  with  the  facts  know  that  they  gave  earnest, 
faithful  and  conscientious  study  to  the  subject.  With  these 
etatements,  this  volume  is  submitted  to  the  public,  with  the 
hope  that,  with  all  its  imperfections,  it  may  still  contribute 
something  toward  a  proper  solution  of  our  Land-Credit 
problem. 

Dice  T.  Morgan. 

WooDWAED,  Oklahoma. 
September  1,  1915. 


INTRODUCTION 

In  enacting  legislation  to  facilitate  land  credits  in  the 
United  States,  we  should  have  clearly  in  view  the  chief 
end  to  be  attained  thereby.  Naturally  we  think  first  of 
the  material  benefit  that  will  accrue  to  our  farming  popu- 
lation. The  farmers  constitute  more  than  one-third  of  our 
total  population.  Their  welfare  is  of  the  highest  impor- 
tance to  the  nation.  To  help  our  farmers,  would  of  itself 
be  a  sufficient  excuse  for  the  establishment  of  a  national 
system  of  land  credits.  Any  legislation  that  would  mate- 
rially aid  one-third  or  more  of  our  population  should  com- 
mand our  most  serious  consideration.  Agriculture  is  our 
greatest  industry,  measured  by  the  number  of  persons  en- 
gaged therein.  The  census  of  1910  shows  that  in  1909 
there  were  over  12,000,000  persons,  over  ten  years  of  age, 
engaged  in  agriculture,  and  about  7,000,000  persons,  over 
ten  years  of  age,  engaged  in  manufacturing  and  mechani- 
cal industries.  Agriculture  is  not  excelled  by  any  other 
industry  measured  by  the  amount  of  the  annual  wealth  it 
produces.  The  census  of  1910  shows  that  our  agricultural 
products  in  1909  were  valued  at  approximately  $9,000,- 
000,000.  The  Department  of  Agriculture  estimated  the 
value  of  our  annual  agricultural  products  for  1914  in  round 
numbers  at  $10,000,000,000.  These  figures  represent  the 
annual  wealth  added  to  our  nation  through  agriculture. 
It  is  true  that  the  annual  output  of  our  manufacturing  in- 
dustries in  1909  was  valued  at  $20,000,000,000.  It  must 
be  borne  in  mind,  however,  that  our  manufacturing  indus- 
tries used  $12,000,000,000  worth  of  raw  material  which 
must  be  deducted  from  the  gross  value  of  their  products,  to 

xi 


xii  Introduction 

ascertain  the  net  annual  wealth  added  to  the  nation  by  our 
manufacturing  industries.  Making  this  deduction,  we  find 
that  agriculture  and  manufacturing  are  practically  on  an 
equilibrium,  measured  by  the  annual  wealth  these  indus- 
tries produce.  But  measured  by  the  real  wealth  added  to 
the  country,  manufacturing  is  the  only  other  industry  that 
compares  with  agriculture  in  the  net  value  of  its  annual 
product.  The  value  of  the  annual  products  of  all  other 
industries  in  the  United  States,  including  mining,  fores- 
try, fisheries,  etc.,  combined,  amounts  to  only  about  $3,- 
000,000,000.  This  is  not  all.  Agriculture,  as  a  basic  in- 
dustry, occupies  a  position  not  approached  by  any  other  in- 
dustry. In  a  ver}'  high  degree  all  other  industries,  includ- 
ing manufacturing,  depend  upon  agriculture  for  support. 
Credit  is  an  instrument  most  potent  in  its  productive 
power.  In  the  last  fifty  years,  we  have  had  marvelous  de- 
velopment in  manufacturing,  commerce,  trade  and  trans- 
portation. Without  credit,  this  unparalleled  development 
would  have  been  utterly  impossible.  The  fact  is,  the  credit 
power  of  the  country  has  been  largely  used  for  the  develop- 
ment of  industries  other  than  agriculture.  The  farmers 
have  not  had  their  share  of  credit.  The  American  farmer 
has  been  taught  rather  to  keep  out  of  debt.  But  if  in  debt, 
it  has  been  his  ambition  to  liquidate  his  indebtedness  at 
the  earliest  date  possible.  With  that  in  view,  he  and  his 
family  have  bent  their  energies,  practicing  self-denial  and 
sacrificing  education,  comfort  and  even  health  itself,  to 
meet  financial  obligations  and  free  the  farm  of  mortgage. 
Some  benefits  have  come  from  this  eifort  of  our  farmers  to 
be  free  from  indebtedness.  The  great  injustice  has  been, 
that  from  a  lack  of  a  proper  system  of  agricultural  credits, 
our  farmers  have  been  compelled  to  pay  a  higher  rate  of  in- 
terest than  has  been  paid  by  those  engaged  in  other  indus- 
tries. This  has,  in  effect,  placed  an  annual  tax  of  im- 
mense proportions  upon  agriculture,  imposed  upon  our 
farming  population  unnecessary  and  unjust  burdens  and 


Introduction  xiii 

hardships,  retarded  the  expansion  of  agriculture,  our  great- 
est industry,  and  thus  held  back  the  growth  of  our  country, 
reduced  its  wealth,  and  weakened  the  fabric  of  our  national 
government. 

In  establishing  a  system  of  farm  credits,  we  may  pri- 
marily and  directly  have  in  view  justice  to  our  farmers 
and  their  families,  to  make  them  more  prosperous,  to  give 
them  greater  profits,  enable  them  to  build  better  homes, 
enjoy  greater  advantages,  and  surround  themselves  with  all 
those  things  which  will  contribute  to  their  comfort,  enjoy- 
ment and  happiness.  But,  back  of  all  this,  we  must  not 
overlook  the  indisputable  fact  that  our  nonfarming  popula- 
tion  is  deeply  interested  in  the  prosperity  of  our  farmers 
and  in  the  growth,  development  and  expansion  of  agricul- 
ture, and  that  upon  the  prosperity  and  extension  of  agri- 
culture depend  the  strength,  greatness,  prestige,  and  per- 
petuity of  the  nation. 

James  J.  Hill  in  his  book  "Highways  of  Progress," 
says: 

"  The  country  is  approaching  the  inevitable  advent  of 
a  population  of  150,000,000  or  200,000,000,  within  the 
lifetime  of  those  now  grown  to  man's  estate,  with  a  poten- 
tial food  supply  that  falls  as  the  draft  upon  it  advances. 
How  are  these  people  to  be  fed  ? " 

There  is  the  problem.  If  we  do  not  plan  to  feed  our 
people,  we  commit  a  great  national  economic  blunder,  in- 
vite national  weakness,  decay  and  deterioration,  and  vol- 
untarily relinquish  our  place  as  a  self-sustaining,  independ- 
ent people.  Farm  credits  should  not  be  viewed  as  a  move- 
ment to  confer  special  favor  upon  our  farmers,  to  make 
them  gifts,  donations,  concessions,  or  the  object  of  charity. 
The  founding  of  an  adequate  system  of  farm  credits  rather 
means  the  initiation,  inauguration  and  perfection  of  a  sys- 
tem of  rural  credits  that  will  represent  a  great  national 
policy;  that  will,  in  its  operation,  not  only  contribute  to 
the  prosperity  and  weU-being  of  our  farmers,  but  will  be- 


xiv  Introduction 

come  a  mighty  factor  in  our  national  development,  in  pro- 
moting the  welfare  of  all  our  people,  in  adding  to  the 
wealth,  the  strength,  the  greatness,  and  the  glory  of  our 
nation,  and  in  extending  the  blessings  of  our  free  govern- 
ment, and  the  ennobling  influences  of  our  Christian  civili- 
zation to  those  living  in  the  remotest  parts  of  the  earth. 

The  general  discussion  of  the  proposition  to  provide  our 
farmers  with  better  credit  facilities  and  cheaper  interest 
is  of  recent  origin.  The  Country  Life  Commission  ap- 
pointed by  President  Eoosevelt  in  its  report  had  little  to 
say  of  better  credit  for  agriculture.  President  Taft  was 
the  first  of  our  Chief  Executives  to  take  the  initiative  in 
the  movement  to  provide  better  credit  for  our  farmers. 
Through  his  Secretary  of  State,  Mr.  Knox,  he  instructed 
our  representatives  abroad  to  investigate  the  farm-credit 
systems  of  other  countries. 

The  Eepublican,  Democratic  and  Progressive  parties  in 
their  national  conventions  in  1913  promulgated  platform 
declarations  in  favor  of  establishing  in  this  country  a  bet- 
ter system  of  farm  credits.  Through  the  initiative  of  the 
Southern  Commercial  Congress,  the  American  Commis- 
sion, composed  of  delegates  from  twenty-nine  States  and 
four  provinces  of  Canada,  was  appointed  to  visit  Europe, 
make  a  study  of  the  rural  credit  systems  of  those  countries, 
and  make  a  report  thereon.  Congress  authorized  the  Presi- 
dent to  appoint  a  commission  —  called  the  United  States 
Commission  —  for  the  same  purpose.  This  commission 
consisted  of  seven  persons,  two  of  whom  were  United  States 
Senators  and  one  a  Eepresentative  in  Congress.  These 
two  commissions  went  abroad  together,  and  cooperated  in 
the  investigation.  In  due  time  the  commissions  made 
their  reports,  and  the  same  have  been  printed. 

Wlien  the  Sixty-third  Congress  convened,  President 
Wilson  in  his  first  message  to  Congress  called  attention  to 
the  importance  of  rural-credit  legislation.  For  the  first 
time  in  its  history  the  United  States  Congress  entered  upon 


Introduction  xv 

a  serious  attempt  to  enact  legislation  which  would  improve 
the  farm-credit  facilities  of  the  United  States  and  reduce 
the  rate  of  interest  which  the  farmers  were  paying. 

A  large  number  of  bills  were  introduced  in  both  Houses 
of  Congress.  The  Banking  and  Currency  Committees  of 
the  Senate  and  the  House  appointed  sub-committees  on 
rural  credits,  and  these  committees  held  hearings  on  the 
subject.  A  large  number  of  persons  appeared  before  these 
sub-committees  and  presented  their  views.  These  hearings 
were  published. 

The  United  States  Commission  prepared  a  bill  which 
was  introduced  in  the  Senate  and  House  simultaneously, 
January  29,  1914.  It  was  introduced  in  the  Senate  by 
Hon.  Duncan  U.  Fletcher,  a  senator  from  Florida,  Sen- 
ate Bill  4246,  and  in  the  House  by  Hon.  Ealph  A.  Moss, 
a  representative  from  Indiana,  H.  E.  12,585.  Originally 
this  bill  authorized  the  formation  of  national  farm  land 
banks  with  a  minimum  capital  stock  of  $10,000.  Subse- 
quently the  bill  was  re-introduced,  fixing  the  minimum 
capital  stock  at  $100,000.  The  new  bill  was  introduced 
in  the  two  houses  January  8,  1915;  S.  7184;  H.  E.  20,689. 
This  bill  has  been  popularly  referred  to  as  the  Fletcher- 
Moss  Bill  or  the  Moss-Fletcher  Bill.  It  will  be  referred 
to  hereinafter  in  this  volume  as  the  "  Commission  "  Bill. 

The  Senate  and  House  committees  on  Banking  and  Cur- 
rency each  appointed  a  sub-committee  on  rural  credits. 
The  two  sub-committees  held  joint  hearings  and  agreed 
upon  a  land-credit  bill.  This  was  introduced  in  the  Sen- 
ate, May  12,  1914,  S.  5542,  by  Senator  Henry  F.  Hollis 
of  New  Hampshire,  and  in  the  House  the  same  date  by 
Eepresentative  Eobert  J.  Bulkley  of  Ohio,  H.  E.  16,478. 
This  is  frequently  called  the  Hollis-Bulkley  or  Bulkley- 
Hollis  Bill.  In  this  volume  it  will  be  referred  to  as  the 
"  Sub-committee  "  Bill. 

On  February  4,  1915,  Senator  Hollis  of  New  Hamp- 
shire introduced  in  the  Senate,  another  bill,  S.  7554,  prac- 


xvi  Introduction 

tically  the  same  as  the  Sub-conunittee  Bill,  eliminating 
the  so-called  "  government  aid  "  provisions. 

On  February  19  (Calendar  day,  February  27),  1915,  the 
Senate  Committee  on  Banking  and  Currency  made  a  report 
on  S.  5542,  the  Sub-committee  Bill,  striking  out  all  after 
the  enacting  clause  and  inserting  a  new  bill,  which  in  the 
main  was  the  Hollis  Bill,  S.  7554,  with  an  important 
amendment,  authorizing  the  organization  of  "  Federal 
Farm  Bond  Banks,^'  corresponding  to  the  National  Farm 
Land  Banks  in  the  Commission  Bill.  This  will  be  re- 
ferred to  as  the  "  Senate  Committee  "  Bill. 

There  were  numerous  other  land-credit  bills  introduced 
in  the  Sixty-third  Congress.  Some  of  them  have  very 
great  merit.  None  of  them,  however,  was  endorsed  by 
the  commission  or  any  of  the  Committees  of  Congress.  It 
was  thought  best  to  confine  the  discussion  to  these  three 
bills  which  have  been  "  oflBcially  endorsed,"  either  by  the 
United  States  Commission,  the  Sub-committees  on  Eural 
Credits,  or  the  Senate  Committee  on  Banking  and  Cur- 
rency. 


CONTENTS 


PAGE 

Inteoduction xi 

CHAPTER 

I    The  Crisis  in  Land  Credit  Legislation     ....       1 
II    Discrimination  Against  Farmers 9 

III  Fundamental  Principles  of  European  Land-credit 

Institutions 20 

IV  The  Commission  Bill,  the  Sub-committee  Bill,  and 

THE  Senate  Committee  Bill 35 

V    Type  of  Institution 49 

VI    Adequate  Credit 70 

VII    Economy  of  Administration 87 

VIII    Competitive  Land  Banks 100 

IX    Inadequacy  of  Eeserv-e  Fund 109 

X    Multiplicity  of  Bond-issuing  Banks 120 

XI    Interest 139 

XII    Government  Ajd 172 

Appendix         . 257 

Index 275 


LAND  CREDITS 

CEAFTER  I 

TWP'  CRISIS  IS  LA5T>  CEEDIT  LBGIHLATIOy 

Theee  k  a  crisis  in  knd-credit  ler'    '* '^  '     *""' '  '^m- 
ing  point  >.^-  '=-^-   -=-^-^.     ThecTi...  ''- 

iiTed-    Al  -.     An  exige 

natioiL     A  f&l~i  s:^tj  n  irretri  r 

at  this  :  ^  at  ^iiie  jnnc- 

%  e.     T?  ty  of  6.51         :   :;::::cr3  is  in- 

•  ion   men,    w-omen,    and    children 

on  our  farms,  and  untold  millions  tc  ~  them,  axe  di- 

rediy,  intensely,  an*?  ^  "  '      "    ""- 

cultnre  —  its  rr-r-~  _^    ,__. —  .e 

annual  wealth  its  aLilitj  t"  TTodnce 

an  adequate  s  ~  ^  for  our  :  "  in- 

creasing popii  ge  mes 

outcome  of  tiie  r  _•  cix-xi. 

This  crisis  ':--  ore  than  the  r'"  ''?!  and  material 

weU-being  of  ...-     ..  „;rs  and  thdx  . c=.     The  sweep 

of  its  iMnence  iacludes  their  intellectual  groTrth,  their 
social  welfare,  and  their  moral  and  spiritual  derelopr-— ' 
Its  impress  will  teU  on  their  schools,  their  churci.      ■      r 
homes,  their  manhood  and  womanhood,  and  upon  i-rir 
lives  and  their  hearts. 

The  result  of  this  crisis  wiU  determine  the  attitul. 

I 


2  Land  Credits 

our  Federal  government  towards  the  farmers  of  the  TJnited 
States.  It  will  show  what  appreciation  this  government 
has  for  the  13,500,000  people  who  toil  upon  our  farms. 
It  will  indicate  the  policy  of  this  government  toward 
these  people  and  their  industry.  Finally,  it  will  show 
what  respect  this  government  has  for  the  rights  of  the 
45,000,000  men,  women,  and  children  who  reside  upon 
our  farms. 

This  crisis  will  not  stop  with  the  farmers.  Its  effect 
will  not  be  restricted  to  agriculture.  Its  influence  will 
not  be  confined  to  rural  life.  Its  sway  will  not  be  limited 
to  the  country  districts.  It  will  involve  every  industry, 
business,  calling,  and  profession  of  life.  Its  influence 
will  extend  to  every  section  of  the  land,  to  every  State  in 
the  Union,  and  to  every  home  and  fireside.  Commerce, 
manufacturing,  mining,  trade,  transportation,  merchandis- 
ing, banking,  clerical  pursuits,  the  learned  professions  — 
all  are  interested.  The  rich  and  the  poor,  the  millionaire 
and  the  pauper,  labor  and  capital,  employers  and  em- 
ployees, merchants,  artisans,  day-laborers,  and  wage-earn- 
ers —  all  will  be  affected  by  the  solution  of  the  existing 
emergency  in  land-credit  legislation. 

This  crisis  is  not  a  creature  of  the  imagination.  It  is 
not  an  illusion,  a  delusion,  a  fable,  a  dream,  or  a  shadow. 
It  is  real  and  tangible.  It  may  be  seen  and  felt,  com- 
prehended and  understood.  It  extends  in  every  direction, 
touches  our  national  life  at  every  point,  and  encompasses 
the  whole  land. 

Settle  this  crisis  right  and  the  republic  will  be  strength- 
ened, its  power  and  influence  will  be  augmented,  its  pres- 
tige will  be  enhanced,  its  fame  will  be  magnified,  its  prin- 
ciples and  ideals  will  be  emphasized  and  accentuated,  its 
resources  and  wealth  will  be  multiplied,  its  security  will 
be  increased,  its  hands  will  be  strengthened,  and  under  its 
flag  will  dwell  a  better  citizenship,  and  a  happier,  more 
contented,  and  prosperous  people. 


The  Crisis  in  Land  Credit  Legislation       3 

To  understand  how  this  crisis  has  been  brought  about, 
let  us  trace  the  history  of  land-credit  legislation  in  the 
Congress  of  the  United  States: 

1.  March  4,  1913,  Congress  authorized  the  President  to 
appoint  a  commission  of  seven  to  go  abroad  and  study 
rural  credits.  The  commission  was  appointed,  made  its 
trip  to  Europe,  returned,  submitted  its  report,  and  pre- 
pared a  land-credit  bill,  which  was  introduced  in  the  Sen- 
ate and  House, 

2.  The  committees  on  Banking  and  Currency  in  the 
House  and  in  the  Senate  appointed  sub-committees  on 
rural  credits,  to  which  were  referred  the  Commission  Bill, 
and  all  other  bills  on  rural  credits.  These  sub-committees 
held  joint  hearings,  and  agreed  upon  a  bill,  which  was  intro- 
duced in  the  Senate  and  House. 

3.  The  Banking  and  Currency  Committee  of  the  Sen- 
ate agreed  upon  a  land-credit  bill,  and  reported  it  favorably 
to  the  Senate  as  a  substitute  for  the  Sub-committee  Bill. 

4.  A  Land-credit  Bill  introduced  by  Senator  Porter 
J,  McCumber  of  North  Dakota  was  placed  as  a  "  rider  " 
upon  the  Agricultural  Appropriation  Bill  in  the  Senate. 
This  was  referred  to  the  Committee  on  Agriculture  of  the 
House,  which  came  back  to  the  House  with  a  report  that 
the  Senate  Committee  Bill  be  substituted  for  the  McCum- 
ber amendment,  and  the  House,  with  some  modifications, 
adopted  the  recommendations  of  the  Committee  on  Agri- 
culture. 

5.  The  Eural-credit  Bill  went  to  the  committee  on  con- 
ference, which  reported  as  a  substitute  therefor  a  provi- 
sion, authorizing  the  appointment  of  a  joint-committee 
of  the  two  houses,  to  consider  the  subject,  prepare  a  bill, 
and  report  to  Congress,  not  later  than  January  1,  1916. 

6.  The  joint-committee  of  the  two  houses  was  appointed, 
and  its  report  will  no  doubt  be  forthcoming  within  the 
time  prescribed  by  law. 

Every  person  interested  in  rural-credit  legislation,  and 


4  Land  Credits 

that  should  include  all  who  are  interested  in  the  welfare  of 
the  country,  should  know  the  line  along  which  rural-credit 
legislation  has  drifted.  He  should  know  the  starting  point, 
the  stopping  point,  and  the  intervening  route  that  has 
been  traveled.  Many  bills  have  been  introduced  in  Con- 
gress. Various  plans  have  been  proposed,  able  speeches 
have  been  made  before  committees  and  the  two  houses  of 
Congress,  but  all  this  may  count  for  little  in  actual  legisla- 
tive progress.  The  line  of  progress  is  marked  by  the 
action  taken  by  the  United  States  Commission  and  the 
Sub-committees,  and  the  Senate  Committee.  The  United 
States  Commission  prepared  a  bill  and  submitted  it  to 
Congress.  This  was  official  action.  The  Sub-committees 
of  the  two  Houses  agreed  upon  a  bill  and  through  the 
chairmen  this  bill  was  introduced  in  the  two  Houses. 
This  was  a  step  forward.  The  Senate  Committee  agreed 
upon  a  bill  and  reported  it  favorably  to  the  Senate.  This 
was  progress.  The  actions  of  the  Commission,  the  Sub- 
committees and  the  Senate  Committee  mark  the  course 
rural-credit  legislation  has  followed.  To  know  where  we 
are  now,  we  must  ascertain  the  contents  of  the  Commis- 
sion Bill,  the  Sub-committee  Bill,  and  the  Senate  Com- 
mittee Bill.  There  is  a  widespread  opinion  that  these 
bills  differ  materially.  They  do  differ  in  some  particu- 
lars. They  do  not  differ  fundamentally.  They  all  create 
the  same  kind  of  an  institution.  They  all  propose  to 
bring  into  existence  purely  private,  profit-sharing,  divi- 
dend-paying, surplus-creating  land  banks  as  the  instru- 
ments to  direct,  control  and  manage  the  land-credit  sys- 
tem for  the  farmers  of  the  United  States.  They  all  pro- 
pose the  same  type,  the  same  character  of  institution. 
This  is  fundamental.  In  this  respect  these  bills  agree 
with  each  other,  but  in  this  particular  they  disagree  with 
practically  all  the  land-credit  systems  of  Europe.  As 
things  stand  to-day,  the  "powers  that  be"  propose  to 
give  our  farmers  private,  profit-sharing  land  banks,  in- 


The  Crisis  in  Land  Credit  Legislation       5 

stead  of  public  or  semi-public,  non-profit-sharing,  farm- 
credit  institutions,  such  as  serve  nearly  all  the  farmers 
of  Europe. 

These  three  bills  are  alike,  in  that  they  propose  to  create 
a  system  of  land  banks,  which  gives  no  assurance  that  it 
will  furnish  the  farmers  of  the  United  States  with  the 
amount  of  credit  they  need,  thus  leaving  them  without 
adequate  credit  facilities  for  many  years  to  come,  com- 
pelling them  to  pay  in  the  meantime  a  much  higher  rate  of 
interest  than  is  paid  by  the  farmers  of  European  countries. 
These  three  bills  agree  in  this,  that  they  authorize  the 
land  banks  to  charge  the  farmers  1  per  cent,  annually 
on  their  loans  for  administration  expenses  and  profits,  a 
sum  four  times  greater  than  the  average  charge  by  Euro- 
pean land-credit  institutions  for  the  same  purpose.  These 
three  bills  agree  in  this,  that  they  do  not  fix  the  rate  of 
interest  the  banks  may  charge  on  loans,  neither  do  they 
establish  a  maximum  rate  that  may  be  charged.  These 
bills  agree  in  establishing  a  system  of  land  banks  that  can 
not  be  economically  operated,  which  will  add  that  much 
additional  burden  upon  the  borrowing  farmers.  These 
three  bills  agree,  in  that  they  propose  to  exempt  private- 
profit-sharing  land  banks  —  their  profits,  resources,  sur- 
pluses and  incomes  from  Federal,  State  and  local  taxation, 
which  must  add  additional  tax-burdens  to  other  private 
property,  rob  the  State  and  local  governments  of  millions 
of  dollars  of  revenue,  when  exemption  from  taxation  is  a 
privilege  not  extended  to  any  of  the  private,  profit-sharing 
land  banks  of  European  countries. 

These  bills  are  alike,  in  that  they  all  propose  a  system 
of  land  banJiS  which  will  place  the  farmers  in  competition 
with  each  other  in  marketing  their  securities  —  a  policy 
that  will  increase  the  rates  of  interest  on  farm-mortgage 
bonds,  which  necessarily  means  a  corresponding  increase  in 
the  rate  of  interest  paid  by  farmers  on  mortgages.  These 
three  bills  are  similar,  in  that  they  authorize  numerous  land 


6  Land  Credits 

banks  to  issue  and  sell  farm-mortgage  bonds,  which  will 
distribute  these  bonds  among  investors  in  all  the  money 
markets   of   the   country   to   the    loss    and    disadvantage 
of  the  farmers.     These  three  bills  correspond  in  this,  that 
they  do  not  recognize  the  importance  of  centralization  and 
unity   in  our  bond-issuing  institutions,   as   a  means   to 
strengthen  the   farmers'   credit,   and  give   the   investing 
public  confidence  in  their  securities.     These  bills  harmo- 
nize with  each  other  in  this,  that  they  propose  to  permit 
banks  to  issue  mortgage  bonds,  whose  capital  stock  will 
be  so  small  as  to  actually  vitiate  and  discredit  the  farm- 
ers' securities  in  the  eyes  of  investors.     These  three  bills 
are  in  the  same  elass  in  this,  that  they  propose  to  establish 
a  large  number  of  rural  banks,  which  will  largely  increase 
the  annual  expenditures  of  the  Federal  government  in  their 
supervision.     These  three  bills  are  identical  in  that  the 
land  banks  created  thereby  do  not  follow  the  vast  majority 
of  the  land-credit  systems  of  Europe,  which  are  associa- 
tions of  borrowers,  or  institutions  founded  and  conducted 
solely  in  the  interest  of  borrowers.     These  three  bills  are 
one  and  the  same  in  this,  that  they  all  create  land  banks 
over  which  the  farmers  will  have  no  control,  but  which 
will  be  owned,  directed  and  dominated  by  private  capital, 
invested  in  these  banks  purely  as  a  money-making  proposi- 
tion, without  any  altruistic  purpose  and  under  no  obliga- 
tion to  serve  the  public  interest.     These  three  bills  are 
identical  in  this,  that  they  limit  the  length  of  loans  from 
30  to  35  years,  too  short  a  period  to  meet  the  needs  of 
farm-tenants,  farm-laborers,  and  others  of  limited  means 
who  desire  to  acquire  farm-homesteads,  thus  discriminat- 
ing against  the  poor,  and  again  refusing  to  follow  the 
European  institutions  which  grant  farm  loans  for  periods 
extending  as  long  as  75  years.     These  three  bills  parallel 
each  other,  in  failing  to  require  sufficient  reserve,  guar- 
anty or  insurance  funds,  to  meet  all  possible  losses,  and 
thus  make  the  mortgage  bonds  absolutely  secure,  a  thing 


The  Crisis  in  Land  Credit  Legislation       J 

that  is  regarded  as  fundamental  in  all  European  countries. 
These  three  bills  coincide  in  establishing  a  land-credit 
system  that  will  not  be  uniform  in  its  benefits  throughout 
the  country,  giving  to  the  farmers  of  one  State  better  facili- 
ties for  credit,  at  a  lower  rate  of  interest,  than  will  be  given 
to  those  in  another  State ;  a  system  which  is  unjust,  unfair, 
discriminating  and  sectional,  and  at  variance  with  Euro- 
pean land-credit  systems.  These  three  bills  are  of  the 
same  family,  because  none  of  them  proposes  a  land-credit 
system  that  is  national  in  its  design,  national  in  its  aim, 
national  in  its  construction,  national  in  its  administra- 
tion, or  through  which  the  Government  at  Washington  may 
carry  out  a  distinctive,  affirmative,  national  policy  toward 
agriculture.  Finally,  while  the  Sub-committee  Bill  does 
contain  a  provision  for  governmental  aid,  along  a  certain 
line,  these  three  bills  are  analogous  in  this,  that  none  of 
them  proposes  the  proper  kind  and  character  of  govern- 
ment aid,  or  such  use  of  the  funds  and  credit  of  the 
Federal  government  as  will  bring  into  existence  a  land- 
credit  system  that  will  furnish  to  the  farmers  of  the 
United  States  the  credit  to  which  they  are  entitled,  or  that 
will  insure  that  expansion  in  agriculture  which  is  essential 
in  order  that  our  republic  may  reach  its  greatest  glory,  and 
its  citizens  attain  the  highest  good ! 

To  undertake  now  to  change  the  course  along  which 
land-credit  legislation  is  moving  is  like  attempting  to 
change  the  channel  of  a  river.  It  is  no  easy  task  to  wipe 
the  slate  clean  and  begin  anew.  The  position  now  occu- 
pied has  not  been  attained  by  chance,  or  accident.  Intelli- 
gent forces  have  been  at  work.  Progress  has  been  made, 
sentiment  has  been  created,  ideas  have  been  developed, 
impressions  have  been  made,  opinions  have  been  formed, 
conclusions  have  been  reached,  and  definite  positions  have 
been  taken.  The  foundation  for  land-credit  legislation  has 
been  laid,  the  frame-work  is  up,  and  the  superstructure  is 
all  but  complete.     Any  material  change  now  means  rebuild- 


8  Land  Credits 

ing  from  the  ground  up,  with  wiser  plans  and  better  ma- 
terial. This  is  the  task  before  those  who  would  modify  the 
plans  which  already  have  been  conceived,  formulated  and 
adopted  by  the  legislative  architects  in  charge.  To  aid  in 
this  great  undertaking,  to  assist  in  the  conception,  prepara- 
tion, and  selection  of  better  plans,  to  help  in  the  work  of 
laying  a  safer  and  more  lasting  foundation,  to  participate 
with  others  in  erecting  a  land-credit  structure  that  will  be 
more  useful  and  acceptable  to  the  farmers  of  the  United 
States,  and  more  beneficial  to  the  country  at  large,  is  the 
mission  of  "  Land  Credits ;  a  Plea  for  the  American 
Farmer." 


CHAPTER  II 

DISCRIMINATION   AGAINST  FAEMERS 

It  is  difficult  to  exaggerate  the  extent  to  which  our 
credit  institutions  discriminate  against  the  farmers  in  ex- 
tending credi't.  It  is  hard  to  comprehend  the  loss  sus- 
tained by  agriculture  through  lack  of  adequate  credit. 
Credit  is  an  instrument  of  great  productive  power.  With- 
out it  our  rapid  commercial  and  industrial  development 
would  have  been  impossible.  As  a  factor  in  our  material 
development,  credit  should  be  ranlved  with  steam  and  elec- 
tricity. The  object  of  rural-credit  legislation  is  to  place 
in  the  hands  of  agriculture  this  modern  instrument  of 
production.  There  is  no  desire  to  rob  commerce,  trade, 
transportation,  and  manufacturing.  The  object  is  to  sup- 
ply agriculture  —  to  place  in  the  hands  of  our  farmers  an 
instrument  that  will  enable  them  to  extend,  expand,  and 
enlarge  their  industry,  increase  their  earning  power,  aug- 
ment their  profits  and  savings,  and  materially  add  to  the 
total  annual  wealth  produced  in  this  country,  from  which 
all  classes  will  reap  great  benefits.  Credit  for  agriculture 
means  the  establishment  of  a  new  enterprise,  the  founding 
of  a  new  institution,  the  invention  of  a  new  tool,  imple- 
ment, or  machine.  Other  industries  have  been  supplied 
with  this  credit.  The  fact  is,  trade,  transportation,  com- 
merce, mercantile  and  industrial  enterprises,  have  largely 
monopolized  the  credit  power  of  our  banking  institutions. 
We  read  the  story  of  the  growth  of  our  cities.  We  ponder 
over  the  concentration  of  our  population  in  our  towns  and 
cities.    We  philosophize  as  to  the  cause  of  this  movement. 

9 


10  Land  Credits 

Recognizing  its  danger,  we  seek  remedies.  We  have  been 
discussing  the  back-to-the-farm  movement.  From  1899 
to  1909  our  urban  population  increased  3-1  per  cent.  Our 
rural  population,  in  the  same  time,  increased  but  11  per 
cent.  Ten  per  cent,  of  our  people  live  in  three  of  our 
great  cities  —  New  York,  Chicago,  and  Philadelphia. 
Twenty-five  per  cent,  of  all  our  citizens  reside  in  cities  with 
a  population  of  100,000  or  over.  Why  this  unparalleled 
growth  in  the  gi-eat  cities?  Why  has  not  the  farm  kept 
pace  with  the  cities?  The  lack  of  credit  has  been  one 
thing  that  has  held  the  farm  back.  An  abundance  of  credit 
power  has  contributed  immensely  to  the  growth  of  our 
cities.  The  credit  power  of  the  country  has  been  concen- 
trated in  our  cities.  It  has  been  used  by  the  merchant, 
the  manufacturer,  the  speculator.  It  has  been  utilized  to 
expand  our  commerce,  to  extend  our  trade,  to  build  up 
our  industrial  centers.  It  has  been  the  one  great  factor 
in  the  construction  of  our  steam  railroads,  our  interurban 
lines,  our  city  transportation  facilities.  It  has  built  our 
great  cities,  paved  their  streets,  erected  their  modern  busi- 
ness buildings,  palatial  residences,  and  provided  them  with 
driveways,  parks,  and  places  of  amusement.  It  has  con- 
structed their  school  houses,  colleges,  universities,  and 
churches.  It  has  given  them  electric  lights,  telephones, 
and  every  other  invention,  contrivance,  improvement,  or  in- 
stitution that  adds  to  the  attractiveness  of  city  life,  or  to 
the  pleasure,  enjoyment,  and  happiness  of  the  dwellers 
therein.  Without  credit  in  abundance  our  cities  could 
not  have  had  such  wonderful  growth,  they  would  have 
been  wanting  in  many  of  the  industries  and  institutions 
which  give  employment  and  support  to  their  people,  and 
the  people  residing  therein  would  be  without  many  of  those 
things  which  to-day  contribute  most  largely  to  their  wel- 
fare and  happiness.  The  absolute  proof  of  these  state- 
ments is  shown  in  the  official  reports  upon  our  credit  insti- 
tutions.    The   annual  report   of  the   Comptroller  of  the 


Discrimination  Against  Fanners  il 

Currency  for  1914  reveals  some  most  interesting  and  in- 
structive facts.  This  report  shows  that  we  have  in  the 
United  States  about  27,000  banks.  Twenty-six  thousand 
seven  hundred  and  sixty-five  reported  to  the  Comp- 
troller. According  to  these  reports  these  banks  have 
$26,971,398,030.96  in  resources.  They  have  $2,132,074,073 
in  capital  stock,  and  $2,276,517,370  in  surplus  and  un- 
divided profits.  They  have  in  loans  and  discounts  and  in 
investments  in  stocks  and  bonds,  $20,873,282,169.  The 
banks  have  but  $2,132,074,073  in  capital,  but  they  are  ex- 
tending credit,  in  loans  and  in  investments  in  stocks  and 
bonds,  to  the  amount  of  $20,873,282,169.  The  banks,  of 
course,  own  their  capital,  but  their  credit  power  —  legally, 
of  course,  placed  in  their  custody  and  control  —  really  be- 
longs to  the  public.  We  think  of  banks  as  cash  insti- 
tutions. Strictly  speaking,  they  are  not.  They  are  credit 
institutions.  They  extend  ten  dollars  in  credit  for  every 
dollar  of  their  capital.  It  is  the  deposits  of  the  public 
that  constitute  the  credit  power  of  the  banks.  These  credit 
institutions  —  these  banking  corporations  —  to  whom  a 
hundred  million  of  people  have  entrusted  their  credit  — 
are,  under  our  laws,  legally  the  custodians  of  this  credit 
and  may  grant  it  to  whom  they  please,  and  distribute  it 
among  those  industries  which  will  insure  the  greatest  re- 
turns to  shareholders.  The  bankers  should  not  be  criti- 
cised for  this.  They  are  engaged  in  a  strictly  private  busi- 
ness —  though  under  the  supervision  of  Federal  and  State 
authority.  The  law  in  no  way  limits  or  restricts  their 
dividends,  their  profits,  or  their  gains.  They  are  profit- 
making  institutions.  In  the  eyes  of  the  world,  the  best 
banker  is  the  one  who  manages  his  business  so  as  to  pay 
the  most  regular  and  liberal  dividends,  create  the  larg- 
est surplus,  and  possess  the  largest  amount  of  undivided 
profits.  The  banks  have  granted  credit  more  liberally  to 
the  city  than  the  country,  and  have  favored  the  demands 
of  commercial  and  corporate  interests  as  against  agricul- 
ture. 


/     12  Land  Credits 

i 

'  In  the  first  place,  in  distributing  credit,  the  banks  have 
I  discriminated  in  favor  of  the  town  and  city  and  against 
[  the  country.  The  report  of  the  Comptroller  of  the  Cur- 
rency shows  that  our  banks  have  loaned  on  farm  lands  only 
$542,115,491,  and  that  they  have  loaned  on  real  estate, 
other  than  farm  lands,  $2,965,844,140.  They  have  more 
than  five  dollars  loaned  on  urban  property  for  every  one 
dollar  loaned  on  farm  lands;  this,  in  face  of  the  fact  that 
farm  lands  are  considered  to  be  safer  security  than  city 
real  estate,  because  subject  to  less  fluctuation.  With  three 
billion  dollars  loaned  on  town  and  city  property  and  only 
one-half  of  one  billion  loaned  on  farm  lands,  it  is  apparent 
that  this  large  extension  of  credit,  secured  by  city  real 
estate,  has  been  a  most  potent  factor  in  the  building  of  our 
towns  and  cities  ahead  of  the  country.  The  towns  and 
cities,  on  real  estate  loans,  have  had  six  times  the  credit 
extended  to  the  country.  This  credit  power  has  been  like 
a  great  throbbing  dynamo,  accelerating  the  building  move- 
ment in  our  towns  and  cities. 

The  Secretary  of  Agriculture  in  his  report  for  1914 
estimates  that  the  State,  private  and  savings  banks  have 
loaned  to  farmers  on  short-time  loans  $1,000,000,000,  and 
that  the  national  banks  have  loaned  to  farmers  on  short- 
time  loans  about  $750,000,000.  This  would  make  the 
total  of  short-time  loans  by  all  our  banks  to  farmers 
$1,750,000,000.  To  this  add  the  $542,115,491  of  farm- 
mortgage  loans  and  we  have  a  total  of  $2,250,000,000 
loaned  to  farmers  by  all  of  our  banks.  But  our 
banks  have  in  loans  and  in  investments  in  securities 
$20,873,282,169.  In  other  words,  our  banks  —  national 
and  State  —  have  extended  to  the  non-farming  population 
over  $18,000,000,000  in  credit  and  to  the  farmers  they 
have  loaned  only  slightly  over  $2,000,000,000.  In  num- 
bers our  farmers  constitute  over  one-third  of  our  popula- 
tion, but  our  banks  extend  them  but  one-ninth  of  the 
credit  of  the  country. 


Discrimination  Against  Farmers  13 

Our  banks.  State  and  national,  in  distributing  credit, 
discriminate  against  land  credit  —  the  safest  security  exist- 
ing. Their  total  loans,  discounts  and  investments  in  se- 
curities of  various  kinds,  as  above  pointed  out,  are 
$20,873,282,169.  On  farm  lands  they  have  loaned  only 
$542,115,491.  Only  214  per  cent,  of  their  loans  and 
investments  are  on  farm  mortgage  security.  Ninety-seven 
and  one-half  per  cent,  of  their  loans  and  investments 
are  upon  securities  other  than  farm  land.  Our  banks  in- 
vest $97.50  in  other  loans  and  securities  for  every  $2.50 
they  invest  in  farm  loans.  The  farm  lands  of  this  country, 
constituting  one-fourth  of  the  wealth  of  the  nation,  com- 
mand from  our  banks  but  one-fortieth  of  the  credit  at 
their  disposal. 

Manufacturing  is  the  only  other  industry  that  com- 
pares vi^ith  agriculture  in  the  amount  of  annual  wealth 
produced.  Manufacturing  has  access  to  the  sources  of 
credit.  The  securities  of  this  great  industry  are  largely  in 
the  form  of  stocks  and  bonds.  Stocks  and  bonds  are 
liquid  and  easily  negotiable.  Manufacturing  concerns  are 
largely  owned  by  corporations.  The  report  of  the  Comp- 
troller of  the  Currency  for  1914  shows  that  on  December 
1,  1914,  nearly  $4,000,000,000  of  industrial  stocks  were 
listed  on  the  New  York  Stock  Exchange  —  constituting 
at  that  time  nearly  one-fourth  of  all  the  stocks  listed  on 
said  Exchange.  On  January  1,  1914,  the  corporations 
of  this  country  had  $64,000,000,000  in  capital  stock,  and 
$37,000,000,000  in  bonded  and  other  forms  of  indebted- 
ness. These  corporations  had  $101,000,000,000  in  stocks 
and  bonds,  and  other  liquid  securities.  They  had  a  net 
annual  taxable  income  of  $4,339,550,008  —  an  income  of  4.3 
per  cent,  upon  their  total  issue  of  stocks,  bonds,  and  other 
forms  of  securities.  The  report  of  the  Comptroller  of  the 
Currency  for  1914,  shows  that  on  June  30,  1914,  the 
banks  —  our  credit  institutions  —  had  loaned,  with  stocks 
and  bonds  as  security,  and  as  investments  in  stocks  and 


14  Land  Credits 

bonds,  the  sum  of  $9,712,000,000.  Think  of  it!  Five 
hundred  and  forty-two  million,  one  hundred  and  fifteen 
thousand,  four  hundred  and  ninety-one  dollars  on  our  farm 
lands;  $9,712,000,000  on  stocks  and  bonds.  Forty-nine 
per  cent,  in  stocks  and  bonds,  and  2^/2  per  cent,  in  farm 
mortgages.  In  round  numbers,  one-half  of  the  entire 
credit  power  of  all  our  banks  is  extended  to  corporations. 
The  entire  amount  loaned  to  farmers  on  both  personal  and 
fanu  land  security  amounts  to  but  10  per  cent,  of  the  loans 
and  investments  of  our  banks.  Have  not  the  farmers  a 
right  to  charge  discrimination  when  our  credit  institutions 
extend  to  corporations  $10  in  credit  for  every  one  dollar 
extended  to  them  ? 

Compare  investments  made  in  railway  securities  with 
loans  on  farm  lands.  The  report  of  the  Comptroller  of  the 
Currency  for  1914,  page  71,  shows  that  on  June  30,  1914, 
the  banks  had  invested  in  railway  bonds  $1,675,303,719, 
and  in  railway  stocks  $73,436,009,  or  a  total  investment 
in  railway  stocks  and  bonds  of  $1,748,739,728.  This 
does  not  include  loans  secured  by  railway  stocks  and  bonds, 
which  doubtless  amount  to  a  much  larger  sum.  This 
$1,748,739,728  is  the  amount  of  railroad  stocks  actually 
owned  by  the  banks.  So,  to  say  nothing  of  the  vast  amount 
of  loans  made  by  the  banks,  with  railway  stocks  and  bonds 
as  collateral  security,  the  banks  have  actually  invested  in 
railway  stocks  and  bonds  more  than  three  times  the  amount 
loaned  to  farmers  on  farm  mortgages.  The  railways  are 
valued  at  $16,000,000,000;  farm  property  is  valued  at 
$41,000,000,000.  The  railways  give  employment  to 
2,500,000  persons;  our  farms  give  employment  to 
12,500,000.  There  are  about  10,000,000  persons  supported 
by  the  railways ;  there  are  45,000,000  people  supported  by 
the  farms.  But  when  our  banks  own  two  and  a  quarter 
billions  of  dollars'  worth  of  railway  stocks  and  bonds,  it 
is  not  surprising  that  the  railroads  have  easy  access  to 
the  sources  of  credit  —  centered  in  our  banking  institu- 


Discrimination  Against  Farmers  15 

tions.  The  banks  have  invested  in  State,  county,  and  mu- 
nicipal bonds  (see  Comptroller's  report  1914,  page  71) 
$1,353,427,136  —  nearly  three  times  the  amount  invested 
in  farm  mortgages.  They  have  over  $6,000,000,000 
loaned  on  paper,  signed  by  one  or  more  persons,  without 
any  collateral  security.  On  one-name  paper  alone,  without 
any  collateral  security,  they  have  $1,336,693,365  —  nearly 
three  times  the  total  amount  loaned  on  farm  lands.  Wliy 
all  these  figures?  What  do  they  teach?  What  are  some 
of  the  conclusions  to  be  drawn  therefrom?  These  statis- 
tics show  conclusively  that  our  banks,  the  credit  institutions 
of  the  nation,  are  institutions  for  the  city  and  not  for  the 
country;  that  they  are  institutions  for  trade,  transporta- 
tion, commerce,  and  manufacturing  and  not  for  agricul- 
ture; that  credit,  as  an  instrument  of  production,  has  been 
largely  monopolized  by  industries  other  than  agriculture; 
that  our  banks  are  contributing  little  to  the  development 
of  our  greatest  industry;  and  that  there  is,  therefore,  a 
just,  legitimate,  and  imperative  need  for  better  credit 
facilities  for  agriculture,  and  that  this  demand  for  better 
credit  for  agriculture  is  a  matter  of  the  greatest  concern 
to  our  nation  and  our  people. 

In  considering  the  indebtedness  of  farmers  and  the 
$500,000,000  they  pay  annually  in  interest  on  private  in- 
debtedness we  should  not  overlook  the  farmers'  share  of  the 
public  indebtedness.  This  public  indebtedness,  a  very 
large  part  of  which  rests  upon  the  farmer,  should  also  be 
taken  into  consideration  as  one  of  the  things  which  makes 
it  the  more  imperative  that  the  national  government 
shall  bring  into  existence  a  system  of  rural  credits  which 
will  reduce  the  annual  interest  charge  which  the  farmers 
are  paying  upon  their  private  indebtedness.  It  is  true, 
that  all  other  industries  pay  taxes  and  a  part  of  the  bur- 
den of  taxation  rests  upon  them.  But  it  is  well  known 
that  the  land  of  the  farmer  never  escapes  taxation,  while 
other  kinds  of  property,  for  various  reasons,  very  often  are 


1 6  Land  Credits 

not  found  by  the  assessor.  Further  than  this,  it  is  well 
established  that  the  farmers,  on  the  average,  are  paying  a 
much  higher  rate  of  interest  than  those  engaged  in  other 
industries  are  paying.  As  long  as  the  farmer  pays  an 
excessive  rate  of  interest,  the  burden  of  taxation  will  be 
more  keenly  felt,  and  the  payment  of  taxes  will  become 
more  and  more  a  burden  upon  agriculture,  which  will  re- 
tard its  development  in  a  way  that  will  react  upon  all 
other  industries  and  affect  adversely  those  engaged  in  all 
other  industries.  Assuming  that  the  farmers  owe  in  all 
forms  of  indebtedness,  $6,00u,000,000,  and  that  upon  this 
indebtedness  they  are  paying  an  annual  interest  rate  — 
say  at  least  3  per  cent,  higher  than  they  would  pay  if  a 
proper  system  of  rural  credit  was  established,  it  is  ap- 
parent that  the  farmers  through  excessive  interest  charges 
are  paying  an  annual  tax  of  approximately  $200,000,000. 
Excessive  interest  charges  and  high  rates  of  taxation  are 
the  two  things  which  are  absorbing  a  very  large  per  cent, 
of  the  income  of  our  farmers.  We  wonder  why  European 
countries  long  ago  undertook  to  provide  their  farmers  with 
ample  credit  and  cheap  interest.  We  naturally  ask  why 
European  governments  freely  used  both  the  cash  and  credit 
of  their  State  and  national  governments,  to  inaugurate  sys- 
tems of  rural  credit  which  would  supply  agriculture  with 
an  abundance  of  credit,  for  long  periods,  on  the  most 
favorable  terms,  at  a  rate  of  interest  even  as  low  as  the 
rates  paid  by  the  governments  themselves.  The  fact  is 
European  governments  acted  from  necessity.  Agriculture 
was  the  basis  of  their  industrial  strength.  Upon  this 
great  industry  these  governments  rested.  Long  and  ex- 
pensive wars  had  increased  governmental  indebtedness. 
The  burden  of  taxation  fell  upon  agriculture.  Interest 
rates  were  high.  Usury  was  rampant.  Agriculture  could 
not  bear  the  combined  burden  of  high  taxation  and  exces- 
sive interest.  These  governments,  to  preserve  their  own 
existence,  were  forced  to  relieve  agriculture  of  this  double 
burden. 


Discrimination  Against  Farmers  17 

The  farmers  in  the  United  States  are  not  on  the  verge 
of  bankruptcy.  But  the  experience  of  other  countries 
shows  that  a  condition  may  be  reached  when  high  interest 
rates  and  burdensome  taxes  may  seriously  embarrass  the 
greatest  industry  of  our  land.  It  will,  therefore,  be  in- 
structive to  study  the  subject  of  public  indebtedness,  and 
the  annual  charge  upon  agriculture  as  well  as  upon  all  other 
industries  through  taxation. 

The  Bureau  of  the  Census,  Department  of  Commerce, 
in  1913  issued  a  bulletin  on  national  and  State  indebted- 
ness. According  to  the  statistics  therein  presented,  "  the 
public  indebtedness,  less  sinking-fund  assets  of  the  nation, 
the  States,  and  all  minor  civil  divisions  of  the  Government, 
in  the  United  States,  amounted,  in  1913,  to  $4,850,460,713. 
This  was  an  increase  of  $8,011,564,591,  or  70.9  per  cent, 
over  the  amount  reported  in  1902."  From  1890  to  1902, 
the  increase  had  been  42.7  per  cent,  or  $849,783,280. 
From  1902  to  1913,  the  per  capita  indebtedness  increased 
$13.98,  or  38.8  per  cent.  From  1890  to  1902  the  per 
capita  indebtedness  increased  $4.23,  or  13.3  per  cent. 
From  1902  to  1913,  the  indebtedness  of  the  national  gov- 
ernment increased  6.1  per  cent.,  the  debts  of  the  State  gov- 
ernments increased  44.5  per  cent.,  and  the  debts  of  counties, 
cities,  villages,  towns,  townships,  school  districts,  drain- 
age, irrigation  districts,  and  all  other  minor  divisions  of 
government  in  the  United  States,  having  power  to  incur 
debt,  increased  113.2  per  cent.  During  the  period  from 
1902  to  1913  the  net  indebtedness  of  the  national  gov- 
ernment increased  $59,106,814;  the  debts  of  the  forty-eight 
State  governments  increased  $106,573,034;  and  the  debts 
of  counties,  cities,  towns,  villages  and  all  other  minor  divi- 
sions of  government  increased  $1,845,884,743. 

The  debt  of  our  national  government  from  1902  to  1913 
increased  only  slightly,  but  the  annual  expenditures  of  the 
national  government  during  this  period  increased  enor- 
mously.    All  this  growth  in  expenditures  and  indebted- 


1 8  Land  Credits 

ness  of  our  national,  State  and  local  governments  means 
that  there  has  been  continual  increase  in  the  rate  of  taxa- 
tion. It  is  important  in  this  discussion  to  note  the  stu- 
pendous increase  in  the  indebtedness  and  expenditures  of 
State  and  local  governments,  which  are  supported  mainly 
by  direct  taxation.  This  kind  of  taxation  necessarily 
falls  most  heavily  upon  the  farmers.  The  total  assessed 
valuation  of  all  property  subject  to  ad  valorem  taxation 
in  1912  was  $69,452,936,104.  Fifty-one  billion,  eight 
himdred  and  fifty-four  million,  nine  thousand,  four  hun- 
dred and  thirty-six  dollars  consisted  of  real  property. 
Three-fourths  of  the  burden  of  all  direct  taxation  for  the 
support  of  all  our  State,  county,  city,  town  and  local  gov- 
ernments, falls  upon  real  estate.  To  say  that  the  farmers 
owe  $6,000,000,000  does  not  express  the  whole  truth.  It 
is  not  mere  fiction  to  say  that  one-half  of  the  debts  owed 
by  the  forty-eight  States,  the  3,000  counties,  the  tens  of 
thousands  of  school  districts,  and  other  local  divisions  of 
government,  are  debts  of  the  American  farmers.  The 
farmers'  share  of  public  indebtedness  amounts  to  probably 
$2,500,000,000.  The  farmers  will  be  taxed  to  pay  these 
debts.  Their  industry  will  contribute  to  their  liquida- 
tion. Their  earnings  will  go  to  pay  the  annual  interest 
charge.  And  with  all  this,  from  the  products  of  their 
toil,  an  annual  charge  will  be  made  in  the  form  of  taxes  to 
meet  the  ever-increasing  cost  of  national.  State,  county, 
township,  school  district  and  precinct  governments.  The 
farmers  own  about  one-fourth  of  the  wealth  of  the  country ; 
they  pay  fully  two-thirds  of  all  the  taxes  for  the  support 
of  the  State,  county  and  all  local  governments,  exclusive 
of  the  villages,  towns  and  cities.  As  shown  elsewhere  in 
this  book,  the  average  rate  of  taxation  upon  property  sub- 
ject to  ad  valorem  taxation  in  the  various  States  of  the 
Union,  is  $1.94  upon  every  $100.  There  is  no  prospect 
that  this  rate  will  be  lowered  in  the  immediate  future. 
The  profits  in  agriculture  are  meager  compared  with  the 


Discrimination  Against  Farmers  19 

profits  in  commercial  and  industrial  businesses.  With  an 
annual  tax  charge  of  nearly  two  per  cent,  per  annum  upon 
the  assessed  valuation  of  the  farms  of  tlie  United  States,  it 
becomes  a  national  necessity  to  provide  the  farmers  of  the 
United  States  with  ample  credit  at  a  low  rate  of  interest. 
And  in  view  of  the  fact  that,  on  the  average,  agriculture 
pays  a  higher  rate  of  interest  than  any  other  important 
industry,  it  will  be  a  great  injustice  to  further  delay  the 
enactment  of  national  laws  that  will  inaugurate  a  system 
of  rural  credits  which  will,  in  a  large  measure,  emancipate 
the  farmers  of  the  United  States  from  unjust  taxation  in 
the  form  of  excessive  interest  charges. 


CHAPTER    III 

FUNDAMENTAL  PRINCIPLES  OP  EUROPEAN   LAND-CREDIT 

INSTITUTIONS 

All  European  land-credit  systems  which  provide  for 
long-term,  farm-mortgage  loans  are  alike  in  some  im- 
portant features.  Germany,  for  instance,  has  several  classes 
or  kinds  of  land-credit  institutions,  organized  under  dif- 
ferent laws,  but  they  all  have  some  things  in  common. 
So  throughout  Europe  whatever  may  be  the  character  of 
the  institutions,  associations,  or  corporations,  whether  they 
be  associations  of  borrowers,  or  organizations  of  lenders, 
profit-sharing  or  non-profit-sharing,  conducted  for  gain  or 
for  the  public  good,  founded  by  private  capital,  or  endowed 
by  the  State  —  they  are  alike  in  some  essential  principles, 
features  and  characteristics.  Among  the  common  features 
of  these  institutions,  may  be  mentioned,  the  following: 

1.  They  are  all  authorized  by  law,  regulated  by  statute 
and  are  subject  to  some  kind  of  State  or  governmental 
supervision. 

2.  They  all  make  unreeallable,  long-time,  reducible  loans. 

3.  They  all  issue  long-time  bonds  or  debentures. 

4.  They  all  require  the  principal  debt  to  be  paid  by 
annual  or  semi-annual,  amortization  payments. 

5.  All  make  their  bonds  or  debentures  absolutely  secure. 

1.  Authorized  hy  Law.  Upon  these  fundamental  propo- 
sitions the  land-credit  systems  of  Europe  are  founded. 
These  essential  features  must,  of  course,  be  embodied  in 
the  land-credit  system  of  the  United  States.  Obviously 
there  can  be  no  system  or  plan  of  land  credit  without 

20 


European  Land-Credit  Institutions       21 

legal  authority.  Through  State  or  Federal  legislation  land- 
credit  institutions  must  be  authorized.  Private  individ- 
uals can  not  supply  agriculture  with  credit.  In  this  coun- 
try, and  in  all  other  countries,  ordinary  commercial  banks 
have  failed  to  supply  agriculture  with  proper  credit.  Banks 
doing  business  on  deposits,  subject  to  check,  are  unsuited 
to  extend  credit  on  land  security.  Individual  money  lend- 
ers are  unequal  to  the  task.  The  law  must  authorize  the 
formation  of  institutions  especially  designed  to  provide 
agricultural  credit.  As  the  modern  business  corporation 
has  served  all  kinds  of  industrial  and  commercial  enter- 
prises, so  it  must  serve  the  farmers  in  supplying  them 
with  credit.  The  farmers'  land-credit  corporation  must 
have  the  sanction  of  legislation.  It  must  have  the  prestige 
of  the  law  behind  it.  Without  this  no  land-credit  institution 
can  gain  and  hold  the  confidence  of  the  public.  So  the 
first  step  is  to  create,  through  statutory  enactment,  artificial 
persons  —  corporations,  associations,  or  institutions  —  and 
send  them  forth  into  the  business  world,  clothed  with  the 
authority  of  the  law,  approved  and  sanctioned  by  the 
Federal  government,  designed,  delegated,  directed  and  com- 
missioned to  perform  the  definite,  specific  work  of  provid- 
ing agriculture  with  adequate  credit  facilities.  In  addition 
to  being  authorized  by  law,  they  must  be  supervised  by 
Federal  authority.  Some  of  the  land-credit  institutions  are 
supervised  by  State  or  provincial  authorities.  These  in- 
stitutions have,  however,  lost  by  this  rather  than  gained. 
There  has  been  some  discussion  as  to  whether  our  land- 
credit  institutions  should  be  State  or  Federal  institutions. 
A  few  of  the  States  have  authorized  the  organization  of 
farm-credit  banking  institutions.  But  nothing  worth  while 
can  be  accomplished  in  this  country,  except  through  na- 
tional legislation,  national  incorporation,  and  national 
supervision.  This  supervision  can  hardly  be  too  severe. 
Anything  which  impairs  confidence  in  our  land-credit  in- 
stitutions will  be  absolutely  fatal  to  their  permanency  and 


22  Land  Credits 

success.  The  Federal  government,  creating  these  institu- 
tions, must  see  to  it  that  their  business  is  conducted  in  a 
way  that  will  protect  both  borrowers  and  investors,  and 
insure  both  permanency  and  efficiency.  The  law  itself  must 
throw  around  them  such  general  rules  as  will  standardize 
their  business  methods  and  keep  them  within  the  limits  of 
perfect  safety.  But  beyond  this,  there  must  be  such  of- 
ficial inspection,  oversight,  and  surveillance  as  will  pre- 
clude losses  through  dishonesty,  speculation,  negligence,  or 
inefficiency. 

2,  Long-time  Loans.  In  Europe  long-time  loans  run 
from  ten  to  seventy-five  'years.  Farm  loans  in  the  United 
States  generally  do  not  run  for  a  period  to  exceed  five  years. 
In  other  words,  as  the  term  is  used  in  Europe,  American 
farmers  have  no  long-time  loans.  This  is  one  great  defect 
in  our  present  farm-loan  business.  It  is  unjust  to  the 
farmer  in  many  ways.  Mr.  Oren  Taft,  Jr.,  of  Chicago, 
who  has  had  extensive  experience  in  the  farm-loan  business, 
in  an  article  in  "  Trust  Companies "  in  September,  1904, 
page  717,  referring  to  the  short -time  farm  loans  in  the 
United  States,  calls  attention  to  the  fact  that  on  the  aver- 
age farm  loans  in  this  country  run  for  a  period  of  fifteen 
years,  though  on  an  average  they  are  made  for  less  than 
five  years,  thus  imposing  upon  borrowers  not  only  great 
annoyance,  but  also  heavy  expense  for  re-newals  of  loans. 

Land-credit  systems  vary  somewhat  in  the  duration  of 
long-term  loans.  In  France  the  maximum  time  for  which  a 
farm  loan  may  be  made  is  75  years.  In  Ireland  loans  may 
be  made  for  68^^  years,  in  Switzerland  for  57  years,  in  Ger- 
many 561/^  years,  in  Sweden  56i/^  years,  in  Eussia  551/2 
years,  in  Australia  541/2  years,  in  Japan  50  years,  in  Italy 
50  years,  in  Austria  42  years,  in  New  Zealand  36%  years, 
in  Chile  33  years,  and  in  Finland  30  years.^ 

There  are  many  advantages  to  the  borrower  in  having  a 
long-time  mortgage  loan  system.     Under  it,  on  reasonable 

1  Herrick,   page  211. 


European  Land-Credit  Institutions       23 

notice,  he  is  entitled  to  pay  the  full  amount  of  his  loan 
at  any  time.  For  this  privilege  he  pays  no  commission 
or  bonus.  He  may  pay  all  or  any  part  of  his  debt  at  rea- 
sonable intervals.  He  is  thus  in  a  position  to  take  ad- 
vantage of  any  reduction  in  interest  rates.  If  he  makes  a 
loan  for  $1,000  for  fifty  years,  at  5  per  cent,  interest,  and 
thereafter  at  any  time  the  prevailing  rate  of  interest  lowers, 
he  can  re-borrow  at  the  lower  rate  and  pay  off  his  original 
loan.  On  the  other  hand,  if  he  borrows  at  4  per  cent., 
for  fifty  years,  and  the  interest  rate  rises,  the  loan  insti- 
tution can  not  demand  a  higher  rate.  The  long-time  loan 
protects  the  farmer  against  misfortune.  In  farming,  as 
in  other  lines  of  business,  misfortune  and  hard  times  may 
come.  Every  country  has  unfavorable  seasons.  They  may 
come  in  succession.  The  farmer  contends  with  drouths, 
storms,  floods,  insects,  and  diseases  in  plant  and  animals. 
Without  his  fault  a  year's  labor  may  be  lost.  There  may 
come  a  series  of  years  in  which  he  fails  to  make  a  living. 
Financially  he  falls  behind.  Unexpectedly  he  finds  him- 
self in  straitened  financial  circumstances.  Under  these 
circumstances  he  can  not  pay  a  short-time  mortgage,  when 
it  is  due.  Renewals  are  often  difficult  to  secure.  Some- 
times they  can  be  secured  only  on  the  payment  of  a  large 
commission  and  higher  rates  of  interest.  With  a  long- 
time farm  mortgage  the  farmer  has  ample  time  to  recoup 
his  losses.  In  long-time  loans  there  is  a  lifetime  in  which 
to  pay  the  principal.  Annual  annuity  payments  are  small. 
Borrowers  have  time  to  tide  over  failures,  misfortunes,  un- 
foreseen and  unexpected  reverses  and  losses.  The  peace 
of  mind  which  these  privileges  afford  is  worth  much  to 
the  borrower  and  his  family.  The  man  carrying  a  long- 
term  mortgage  loan  is  a  better  citizen  than  the  one  who 
lives  constantly  in  fear  of  foreclosure,  ejectment,  and  loss 
of  home.  This  is  an  asset  to  the  community  and  the 
State.  Under  the  short-term  mortgage-loan  practice  in 
vogue  in  this  country  the  borrowers  are  pressed  to  the 


24  Land  Credits 

limit  to  meet  the  payment  of  the  principal  of  their  debts. 
They  and  their  families  are  kept  under  constant  strain. 
Every  effort  is  put  forth.  Every  member  of  the  family 
must  sacrifice.  The  children  are  denied  educational  ad- 
vantages. They  are  cut  off  from  opportunities  of  greater 
usefulness.  Even  if  the  borrower  succeeds  in  meeting  his 
obligation  when  due,  the  cost  has  been  too  great.  A  long- 
term  mortgage  loan  system  will,  therefore,  become  a  factor 
in  social  uplift,  in  conserving  and  improving  the  physical 
strength  of  our  farming  population,  in  extending  to  them 
better  facilities  for  intellectual  development,  and  in  en- 
larging, broadening,  and  multiplying  their  opportunities 
in  life.  The  long-time  farm  mortgage  loan  enables  the 
borrower  to  do  better  farming.  He  will  have  additional 
funds  to  enlarge  his  farming  operations,  to  provide  better 
machinery,  implements  and  tools,  to  acquire  more  live  stock, 
to  erect  more  suitable  farm  buildings,  to  plant  orchards, 
grow  timber,  reclaim  unproductive  lands,  and  to  acquire 
many  other  things  which  will  make  the  farm  more  pro- 
ductive, more  profitable,  and  more  attractive.  The  long- 
term  farm  loan  will  enable  the  average  farmer  greatly  to 
reduce  the  amount  of  his  personal  short-time  indebtedness, 
which  he  now  owes  his  local  banker,  or  merchant  from 
whom  he  buys  supplies  on  time.  These  short-time  loans  are 
on  personal  or  chattel  security;  ordinarily  they  run  at 
a  high  rate  of  interest.  With  longer  time  in  which  to 
meet  the  farm-mortgage  indebtedness,  the  farmer  will  have 
a  greater  surplus  of  funds.  More  generally,  he  will  be 
a  cash  customer  for  the  merchant.  To  a  larger  extent  he 
becomes  a  depositor  in  the  local  bank,  which  will  reap  a 
profit  in  loaning  his  funds  to  others.  Here,  it  might 
be  added,  it  is  that  the  establishment  of  a  long-term  system 
of  farm  land  mortgage  credit  will  benefit,  not  injure,  com- 
mercial banks.  The  vast  majority  of  these  banks  are  com- 
paratively small  institutions,  located  in  farm  communities. 
They  are  almost  entirely  dependent  upon  agriculture.     Any 


European  Land-Credit  Institutions        25 

change  in  our  farm-credit  system  which  increases  the  pro- 
duction of  the  soil,  enlarges  farming  operations,  or  aug- 
ments the  prosperity  of  the  farmers,  will  add  to  the  value 
of  the  capital  stock  of  every  bank  located  in  a  farming  com- 
munity, and  will  increase  its  dividends,  surplus,  and  profits. 
The  commercial  banks  should  be  enthusiastic  supporters  of 
the  movement  to  give  the  farmers  of  the  United  States  the 
very  best  system  of  land  credit  that  can  be  devised.  Fi- 
nally, the  long-term  farm  mortgage  is  absolutely  essential 
to  meet  the  wants  of  tenants  and  other  persons  of  limited 
means  who  wish  to  acquire  farm  homesteads.  It  is  true 
that  we  do  not  have  in  this  country  liberated  serfs  or  any 
class  of  farmers  on  a  level  with  the  peasants  of  some 
of  the  European  countries.  However,  about  one-third  of 
our  farmers  are  tenants.  The  census  of  1910  shows  that 
we  had  in  this  country  6,361,502  farmers.  Two  million, 
three  hundred  fifty-four  thousand,  six  hundred  and  seventy- 
six  of  these  were  tenants.  It  is  not  necessary  to  enter 
upon  an  argument  to  show  the  evils  of  farm  tenancy.  All 
thoughtful  persons  recognize  the  importance  of  encourag- 
ing home-owning  in  both  the  country  and  city.  One  of  the 
wisest  things  this  country  ever  did  was  to  dedicate  the 
public  domain  to  provide  homes  for  the  homeless.  There 
was  a  time  when  some  of  our  prominent  statesmen  con- 
tended that  primarily  the  public  domain  should  be  used 
as  a  source  of  revenue  to  the  national  government.  For 
some  years  it  was  so  used.  The  free  homestead  law  did  not 
pass  without  a  struggle.  It  was  passed  by  both  Houses 
of  Congress  once,  and  vetoed  by  one  of  our  Presidents. 
The  measure  finally  became  a  law  and  received  the  ap- 
proval of  Abraham  Lincoln.  Vast  millions  of  dollars  were 
thus  diverted  from  the  national  treasury.  Indirectly  these 
funds  flowed  back  into  the  treasury  in  far  greater  abun- 
dance; we  became  a  greater  and  stronger  nation;  and  our 
citizenship  was  strengthened  in  loyalty,  fidelity  and  devo- 
tion to  the  principles  of  our  free  government.     With  the 


26  Land  Credits 

cream  of  our  public  domain  already  gone,  this  government 
should  enter  vigorously  upon  a  plan  to  promote  home- 
owning  among  our  citizenship.  Our  task  is  not  so  great 
or  so  difficult  as  that  which  confronted  many  of  the  Eu- 
ropean countries.  We  do  not  have  to  deal  with  problems 
which  confronted  Eussia  when  she  liberated  her  22,000,000 
serfs.  We  do  not  need  to  use  a  thousand  millions  of  dol- 
lars in  funds  of  this  government  which  England  will  prob- 
ably finally  expend  in  acquiring  homes  for  the  peasants  of 
Ireland.  It  will  not  be  necessary  for  us  to  authorize  the 
expropriation  of  lands  in  private  ownership  to  secure  homes 
for  our  tenants  and  for  others  who  wish  to  acquire  farm 
homesteads.  If  we  establish  a  proper  system  of  long-term 
mortgage  loans,  modeled  after  the  best  systems  of  Europe, 
with  reasonable  aid  in  the  funds  or  credit  of  the  national 
government,  the  tenancy  problem  in  the  United  States  will 
solve  itself.  And  as  the  years  shall  go  by  we  shall  see 
through  the  reports  of  our  decennial  census  that  propor- 
tionately our  farm  tenants  are  growing  less,  that  we  are 
making  substantial  progress  in  reclaiming  waste  and  un- 
productive lands,  and  that  millions  of  our  people  through 
long-term  mortgage  credit  have  become  independent,  self- 
.  respecting,  happy,  patriotic  farm-home  owners. 

3.  The  Bonds  and  Debentures.  One  of  the  most  im- 
portant discoveries  in  the  world  was  the  invention  of  the 
farm-mortgage  bond  or  debenture  as  an  instrument  to 
promote  land  credit.  There  never  has  been  a  successful 
system  of  land  credit  established  in  any  country  that  does 
not  utilize  the  mortgage  bond  or  debenture  as  an  instru- 
ment to  mobilize  and  Hquefy  land  values.  Through  the 
mortgage  bond  or  debenture  the  farm  mortgage  has  been 
made  easily  negotiable,  and  put  in  such  form  that  the 
holder  may  realize  thereon  immediately.  The  mortgage 
bond  and  the  debenture  in  effect  are  the  same.  The  term 
"mortgage  bond"  is  used  to  indicate  bonds  or  securities 
secured   by  certain   specified   and   designated   mortgages. 


European  Land-Credit  Institutions        27 

The  "  debenture  "  is  an  obligation  of  a  bank  or  other  in- 
stitution, secured  not  by  a  number  of  specific  mortgages, 
but  by  the  general  assets  of  the  institution  issuing  the 
debenture.     For  instance,  the  Credit  Foncier  of  France  esti- 
mates that  it  will  need  $50,000,000  additional  money  on 
which  to  make  farm  mortgage  loans.     Under  the  law  it 
may  issue  and  sell  $50,000,000  in  debentures  even  before 
it  makes  the  loans,  while  a  bank,  issuing  mortgage  bonds, 
would  first  make  the  loans,  and  place  the  mortgages  in 
trust  as  a  special  security  for  the  bonds  issued  thereon. 
Thus  the  designated  mortgages  become  the  chief  security 
for  a  certain  issue  of  bonds,  and  the  institution  must  keep 
deposited  in  trust  farm  mortgages  to  secure  its  bonds  in  an 
amount  equal  to  the  total  of  bonds  issued.     The  bonds 
must  not  exceed  the  amount  of  mortgages  deposited  in 
trust  to  secure  their  payment.     If  a  mortgage  is  paid, 
another  mortgage  of  equal  face  value  must  be  deposited  in 
trust  in  lieu  of  it.     In  principle  and  in  practice  the  mort- 
gage bond  and  debenture  serve  the  same  purpose.     The 
Landschaften  of  Germany  issue  debentures.     Their  deben- 
tures in  amount  always  correspond  with  the  amount  of  the 
mortgages  held  by  the  Landschaft.     This  must  be  true  be- 
cause the  Landschaft  does  not  pay  the  borrower  the  cash, 
but  simply   delivers  to  him  bonds  in  an  amount  equal 
to  his  mortgage.     The  borrower  takes  the  bonds  and  disposes 
of  them  himself.     He  may  sell  them  to  one  or  more  indi- 
viduals, or  to  a  bank,  or  through  the  bank  of  the  Landschaft, 
which  has  been  in  many  cases  organized  especially  to  aid 
borrowers  to  dispose  of  their  bonds.     The  joint-stock  mort- 
gage banks  pay  their  loans  in  cash.     They  issue  mortgage 
bonds,  which  are  secured  by  designated  farm  mortgages 
of  an  equal  amount.     These  mortgages  are  invariably  de- 
posited in  trust  to  secure  the  payment  of  the  bonds.     The 
specific   mortgages   deposited   in   trust    are  not   the   sole 
security  for  the  payment  of  mortgage  bonds.     The  mortgage 
banks  are  required  to  set  aside  certain  reserve  or  guaranty 


28  Land  Credits 

funds  to  provide  against  losses  from  the  nonpayment  of 
the  principal  or  interest  on  mortgages  held  in  trust.  Fi- 
nally, of  course,  the  capital  of  the  mortgage  bank,  its 
surplus,  and  all  of  its  assets  would  be  used,  if  necessary, 
to  redeem  any  outstanding  mortgage  bond.  Generally,  of 
course,  the  bondholders  have  a  special  and  prior  lien  over 
other  creditors  upon  the  mortgages  deposited  in  trust  to 
secure  bonds  issued  thereon.  The  bond  and  debenture  are 
the  farm  mortgage  in  another  form.  The  farm-loan  insti- 
tutions collect  farm  mortgages,  and  then,  by  the  authority 
of  law  and  under  governmental  supervision,  change  their 
form  into  a  security  suitable  to  the  needs  and  wants  of 
investors,  large  or  small,  and  in  form  and  character  cor- 
responding to  securities  of  all  other  kinds,  familiar  to 
the  financial  world.  The  farm  mortgages  lie  in  safe  se- 
clusion. The  bond  and  debenture,  their  representatives, 
are  out  "  in  company,"  commanding  recognition  even  above 
the  best  industrial  securities,  and  selling  practically  upon 
a  par  with  bonds  issued  by  the  greatest  and  strongest  gov- 
ernments of  Europe. 

The  change  of  farm  mortgages  into  bonds  or  debentures 
is  like  the  process  of  mining,  modifying,  and  purifying 
minerals.  Iron,  copper,  lead,  zinc,  silver  and  gold,  as  taken 
from  the  mines,  are  not  suitable  for  commerce,  but  through 
various  processes  these  minerals  are  refined  and  made  in 
form  to  meet  the  needs  of  commerce,  industry,  the  arts, 
and  the  innumerable  wants  of  mankind.  So  through  mort- 
gage bonds  or  debentures  farm  mortgages  are  changed  in 
form,  modified  and  refined,  and  made  to  conform  to  the 
needs  of  investors,  banks  and  credit  institutions,  to  serve 
agriculture,  and  to  contribute  materially  to  the  welfare  of 
our  farmers  and  all  other  classes  of  our  citizens. 

The  bonds  and  debentures  of  the  European  land-credit 
institutions  are  payable  at  no  fked  time.  The  holder  and 
owner  of  a  mortgage  bond  or  debenture  can  never  demand, 
its  payment.     The  institution  which  issues  the  bond  or 


European  Land-Credit  Institutions        29 

debenture  may  recall  and  redeem  the  bond  at  its  pleasure. 
The  bonds  and  debentures  are  redeemed  by  issuing  institu- 
tions in  the  same  ratio  that  mortgages  are  paid.  This  is 
obligatory  upon  land-credit  institutions.  The  outstanding 
bonds  must  never  exceed  the  amount  of  unpaid,  existing 
mortgages.  The  bonds  or  debentures  to  be  retired  are  de- 
termined by  some  system  of  drawing.  Bonds  and  de- 
bentures must  be  redeemed  at  par.  The  fact  that  there  is 
no  fixed  time  for  the  payment  of  the  bonds  and  debentures 
at  first  would  appear  to  be  a  serious  objection  thereto. 
But  this,  however,  is  not  true.  These  bonds  and  de- 
bentures are  highly  liquid  securities.  They  are  generally 
payable  to  bearer.  They  are  transferable  by  mere  delivery. 
They  are  easily  negotiated  and  assigned.  They  may  be 
used  as  collateral  security  for  loans.  They  are  regarded  as 
gilt-edged  security.  Perhaps  more  than  any  other  security 
they  are  like  money  itself.  Indeed,  the  effort  to  make 
land  the  basis  for  money,  the  circulating  mediimi  of  the 
country,  appears  to  be  responsible  for  the  invention  of  the 
land  debenture.  The  owner  of  a  mortgage  bond  or  de- 
benture is  not  concerned  as  to  the  time  it  will  be  paid  by 
the  issuing  institution.  He  may  at  any  time  realize  cash 
therefor.  Wlienever  he  wishes  to  change  the  form  of  his 
investment,  he  can  do  so  without  any  material  loss,  because 
there  are  always  buyers  for  these  securities. 

4.  Amortization  Payments.  All  the  land-credit  institu- 
tions of  Europe,  for  long-time  loans,  require  the  principal 
to  be  paid  by  annual  or  semi-annual  payments.  Usually  the 
pajnnents  are  made  semi-annually.  These  are  called  amor- 
tization payments.  Amortization  means  "  the  extinction 
or  reduction  of  a  debt  through  a  sinking  fund."  To 
amortize  a  debt  signifies  to  destroy,  kill,  or  extinguish  it 
by  means  of  a  sinking  fund.  The  small  annual  payments 
made  by  borrowers  are  placed  in  a  sinking  fund,  A  sink- 
ing fund  is  a  fund  that  is  "  instituted  and  invested  in  such 
a  manner  that  its  gradual  accumulations  will  enable  it  to 


20  Land  Credits 

meet  and  wipe  out  a  debt  at  its  maturity."  The  land-credit 
institutions  issue  bonds  or  debentures  in  amounts  corre- 
sponding to  the  aggregate  value  of  their  mortgages.  These 
bonds  or  debentures  on  their  face  are  the  debt  of  the  in- 
stitution issuing  them.  Primarily  the  bonds  and  deben- 
tures are  the  debt  of  the  borrowers,  who  have  executed  and 
delivered  their  mortgages  to  land-credit  corporations.  In- 
terest must  be  paid  on  these  bonds  and  debentures.  Ulti- 
mately the  principal  of  the  bonds  must  be  paid.  The 
mortgagors  must  pay  both  the  interest  and  principal  and 
in  addition  must  contribute  an  additional  fund  to  meet  the 
cost  of  operation,  or  administration  charges,  including  what- 
ever profits  are  made.  The  land-credit  institution,  what- 
ever be  its  name  or  character,  acts  merely  as  the  agent  of 
the  borrowers.  It  is  merely  an  intermediary  between  bor- 
rowers and  investors.  Even  if  it  be  a  non-profit-sharing 
institution,  it  contributes  ^nothing  to  the  payment  of  prin- 
cipal, interest,  or  administration  charges.  But  to  enable 
the  borrowers  to  meet  the  obligations  they  owe  the  credit 
institutions,  and  to  make  it  possible  for  these  institutions 
to  extinguish  their  bonded  indebtedness,  which  they  have 
incurred  to  secure  funds  with  which  to  make  loans  to 
farmers,  a  sinking  fund  is  created,  to  which  every  bor- 
rower contributes  a  certain  definite  and  fixed  sum,  payable 
annually  or  semi-annually.  These  sinking-fund  payments 
are  either  invested  for  the  use  and  benefit  of  borrowers  or 
are  used  in  redeeming  outstanding  bonds  or  debentures. 
The  use  of  amortization  payments  to  extinguish  long-time 
farm  loans  is  a  feature  of  the  land-credit  systems  of  Eu- 
rope of  the  highest  importance.  The  long-time  loan,  the 
mortgage  bond  or  debenture,  and  the  amortization  payments 
are  the  triple  combination  which  is  in  the  main  responsi- 
ble for  the  success  of  all  existing  systems  of  land  credit. 
The  land-credit  systems  of  Europe  require  that  borrowers 
shall  pay  at  least  one-half  of  1  per  cent,  per  annum  upon 
the  principal  of  their  debt.     The  payment  of  this  amount 


European  Land-Credit  Institutions       31 

annually  will  liquidate  the  debt  in  fifty-six  and  one-half 
years.  The  advantages  of  paying  a  debt  by  small  annual 
payments  are  many.  In  the  first  place  it  stimulates  thrift. 
It  encourages  systematic  saving.  It  is  the  only  method  by 
which  the  average  person  of  small  means  can  acquire  and 
pay  for  a  farmhome.  Only  institutions  authorized  to  make 
long-time  loans  and  issue  and  sell  long-time  bonds  or  de- 
bentures can  make  loans  payable  in  small  annual  pay- 
ments. The  individual  money  lender  would  not  care  to 
accept  the  payment  of  the  principal  of  a  loan  in  driblets. 
Land-mortgage  institutions  may  accept  small  payments,  be- 
cause the  funds  which  they  use  in  making  loans  are  bor- 
rowed from  investors  through  the  sale  of  long-time  bonds 
or  debentures.  Small  annual  or  semi-annual  payments, 
contributed  by  numerous  borrowers,  pouring  into  a  common 
treasury,  with  regularity,  precision,  and  certainty,  create 
a  fund  ample  to  liquidate  at  maturity  the  bond  or  deben- 
ture indebtedness  of  the  largest  land-credit  institution. 

5.  Absolute  Security  of  Bonds  and  Debentures.  The 
success  of  any  land-credit  system  depends  upon  the  absolute 
security  of  the  bonds  and  debentures  issued  by  the  corpora- 
tions empowered  to  operate  the  business.  The  bonds  and 
debentures  run  for  long  years.  Generally,  under  Euro- 
pean land-credit  systems,  there  is  no  fixed  time  for  their 
maturity.  In  duration  they  live  beyond  the  lifetime  of  a 
generation.  The  active  managers  of  an  institution  at  the 
time  a  series  of  bonds  is  issued  may  not  live  to  see  them 
all  paid.  The  sale  of  bonds  and  debentures  is  the  source 
through  which  the  funds  come  to  provide  agriculture  with 
its  credit.  The  streams  of  credit  would  soon  cease  to 
flow  into  the  treasury  of  the  land-credit  institutions,  if 
there  were  the  least  doubt  about  the  absolute  safety  of 
their  securities.  Other  defects  in  a  land-credit  system  may 
be  overlooked.  This  or  that,  may  distinguish  one  system 
from  another.  One  system  may  be  successful  in  one  coun- 
try ;  a  different  one  may  prosper  in  another  country.     One 


32  Land  Credits 

may  be  better  or  worse  than  the  other.  None  of  them 
can  be  permanent  or  successful  unless  the  investing  public 
has  perfect  confidence  in  the  securities  offered  to  investors. 
In  founding  land-credit  institutions,  European  countries 
have  exercised  the  highest  diligence  to  insure  the  safety  of 
mortgage  bonds  and  debentures.  Every  reasonable  precau- 
tion and  safeguard  has  been  utilized.  In  the  old  Land- 
schaften  the  principle  of  unlimited  liability  was  adopted. 
In  later  years,  some  of  the  Landschaften  have  abandoned 
this  idea.  Where  this  has  been  done,  other  safeguards 
have  been  substituted.  The  amount  of  a  loan  upon  a  farm 
is  limited  to  a  certain  percentage  of  the  appraised  value 
of  the  farm.  Appraisements  are  conservative.  Definite 
and  fixed  rules  are  applied  in  ascertaining  the  actual  value 
of  the  land  mortgaged.  The  loan  institutions  carefully 
inspect  property  during  the  lifetime  of  the  loan.  Any 
serious  deterioration  in  the  value  of  property  makes  the 
mortgage  subject  to  foreclosure.  Provision  is  made  to 
remove  all  question  of  title  to  the  mortgaged  property. 
Many  of  the  loan  institutions  have  special  privileges  in 
the  steps  necessary  to  enforce  payment.  The  officers  of 
the  Landschaften  of  Germany  are  clothed  with  executive, 
administrative  and  judicial  powers,  such  as  are  exercised 
by  courts  and  public  officials.  The  law  limits  and  re- 
stricts the  business  of  all  land-credit  institutions.  Officers 
are  required  to  make  frequent  reports.  Governmental  in- 
spection is  authorized.  In  the  internal  administration  of 
these  institutions,  one  officer  acts  as  a  check  upon  another. 
Some  provision  is  made  in  all  institutions  for  the  accumu- 
lation of  reserves  and  guaranty  funds,  designed  especially 
to  meet  losses  through  nonpayment  of  interest  and  prin- 
cipal of  any  loan.  All  of  which  are  essential.  A  bond  or 
debenture  of  doubtful  security  can  not  be  sold.  This  is 
not  all.  The  safety  of  the  bond  or  debenture  affects  the 
rate  of  interest  on  the  bond.  The  safer  the  security,  the 
lower  the  interest.     To  secure  high  interest,  some  investors 


European  Land-Credit  Institutions       33 

may  purchase  a  bond  or  debenture  of  questionable  security. 
But  a  security  with  a  low  rate  of  interest  can  not  be  sold 
in  large  quantities  unless  it  is  regarded  as  absolutely  safe. 
In  establishing  land-credit  institutions  for  the  United 
States,  "  safety  first "  would  be  an  excellent  motto.  In  an- 
other chapter  there  will  be  discussed  some  of  the  ways, 
means,  and  methods  by  which  bonds  and  debentures  may 
be  made  secure.  In  the  inauguration  of  a  new  land-credit 
system  in  the  United  States,  bonds  and  debentures  must  be 
made  secure.  The  farmer  possesses  the  land  which  in  itself 
is  absolute  security  for  the  money  which  will  be  loaned  to 
him.  That  security  must  not  be  vitiated,  impaired,  or  de- 
teriorated by  the  corporation  —  whatever  may  be  its  title  or 
name  —  brought  into  existence  by  the  national  government 
to  collect  and  market  the  security  the  farmer  presents.  The 
farmer  —  not  the  land  bank  —  is  most  deeply  and  vitally 
interested  in  the  safety  of  the  mortgage  bonds  issued.  It 
has  been  demonstrated  by  European  experience  that  the 
principle  of  unlimited  liability  is  not  essential  to  the  safety 
of  land  securities.  For  many  reasons,  this  feature  would 
be  objectionable  to  American  farmers.  Being  unneces- 
sary, it  should  not  be  adopted  in  this  country.  In  many 
of  the  European  countries,  the  provincial.  State  or  imperial 
governments  guarantee  the  payment  of  the  bonds  or  de- 
bentures issued  by  the  public  land-credit  institutions.  Such 
guaranty  has  not  been  extended  to  private,  joint-stock, 
profit-sharing,  land-mortgage  institutions.  Without  dis- 
cussing here  the  question  of  government  aid,  the  Federal 
government,  in  assuming  the  responsibility  of  creating  na- 
tional land-credit  institutions,  must,  above  all  things  else, 
see  to  it  that  the  bonds  or  debentures  issued  by  these  in- 
stitutions shall  be  securities  about  the  safety  of  which  there 
can  be  and  will  be  no  question. 

It  would  be  a  great  mistake  to  assume  that  any  system 
of  land  credit  which  possessed  the  six  fundamental  fea- 
tures,  enumerated   above,   would   be   satisfactory.     Other 


34  Land  Credits 

things  are  essential,  without  which  our  land-credit  system 
will  be  comparatively  a  failure.  It  is  not  the  main  object 
of  this  volume  to  discuss  propositions  upon  which  there 
is  no  controversy.  Eather  the  chief  purpose  is  to  elucidate, 
if  possible,  those  points  upon  which  there  is  disagreement. 
The  succeeding  chapters  will  be  devoted  to  the  discussion 
of  other  features  and  principles  which  are  essential  to 
the  success  of  our  land-credit  system. 


CHAPTER  IV 

THE   COMMISSION    BILL,    THE    SUB-COMMITTEE    BILL   AND 
THE   SENATE    COMMITTEE   BILL 

The  next  step  is  to  get  a  clear  idea  of  the  provisions  in 
the  three  "  officially  endorsed "  bills,  viz. : 
First.     The  Commission  Bill. 
Second.     The  Sub-committee  Bill. 
Third.     The  Senate  Committee  Bill. 

First.    The  Commission  Bill 

1.  It  provides  for  the  creation  of  a  bureau  of  farm  land 
banks  in  the  Department  of  the  Treasury,  for  the  appoint- 
ment of  Commissioner  of  Farm  Land  Banks,  gives  the 
Commissioner,  under  the  direction  of  the  Secretary  of  the 
Treasury,  supervision  over  farm  land  banks,  and  prescribes 
the  duties  of  the  Commissioner. 

2.  It  authorizes  the  establishment  of  national  farm  land 
banks,  by  ten  or  more  persons,  with  capital  stock  of  not 
less  than  $100,000. 

3.  The  national  farm  land  banks  are  authorized  to 
make  loans  on  first-mortgage  security  on  farm  lands  within 
the  States  where  they  are  located,  limited  to  50  per  cent,  of 
the  value  of  the  land,  to  run  for  not  more  than  thirty-five 
years,  to  be  paid  in  annual  or  semi-annual  amortization 
payments,  if  loan  extends  over  a  period  of  five  years,  and 
provides  that  loans  shall  be  made  only  to  enable  the  bor- 
rower to  complete  the  purchase  price  of  the  lands  mort- 
gaged, to  improve  and  equip  such  lands  for  agricultural 
purposes,  and  to  pay  debts  secured  by  mortgages  or  deeds 
of  trust  on  such  lands. 

35 


36  Land  Credits 

4.  Every  national  land  bank  is  authorized  to  issue  and 
sell  national  land  bank  bonds,  secured  by  first  mortgages 
in  an  amount  equal  at  least  to  the  face  value  of  the  national 
land  bank  bonds,  limited  in  amount  to  fifteen  times  the 
amount  of  its  capital  stock  and  surplus. 

5.  The  rate  of  interest  charged  on  farm  loans  shall  not 
exceed  the  rate  of  interest  paid  by  the  bank  on  national 
land  bank  bonds  by  more  than  1  per  cent,  annually. 

6.  The  charges  of  administration  imposed  upon  bor- 
rowers shall  not  exceed  an  annual  charge  of  1  per  cent,  per 
annum  upon  the  amount  unpciid  on  a  loan. 

7.  Every  national  farm  land  bank,  its  capital  stock, 
surplus,  and  the  income  derived  therefrom,  and  all  notes, 
mortgages,  deeds  of  trust  held,  and  all  national  land  bank 
bonds  issued  by  such  bank,  shall  be  exempt  from  Federal, 
State,  and  local  taxation,  except  taxes  upon  real  estate. 

8.  Provision  is  made  for  existing  land-mortgage  asso- 
ciations and  corporations  to  become  national  farm  land 
banks. 

9.  The  national  land  bank  bonds  are  made  available  as 
security  for  the  deposit  of  postal  savings  funds,  as  legal 
investment  for  time  deposits  of  national  banking  associa- 
tions, and  for  funds  in  District  of  Columbia  savings  banks, 
for  trust  funds  and  estates  under  charge  of  or  administered 
by  United  States  Courts,  and  as  security  for  loans  from 
national  banking  associations  to  national  farm  land  banks, 
or  to  individuals  to  an  amount  aggregating  not  over  25 
per  cent,  of  the  capital  and  surplus  or  to  one-third  the  time 
deposits  of  the  national  banking  association  making  such 
loan.  The  Commissioner  of  Farm  Land  Banks,  with  the 
approval  of  the  Secretary  of  the  Treasury,  may  withhold 
certain  of  the  foregoing  privileges  from  the  banks  of  any 
State  until  the  State  has  complied  with  certain  require- 
ments, 

10.  Provision  is  made  for  the  appointment  of  exam- 
iners of  national  farm  land  banks,  and  for  close  supervision 
over  their  business. 


The  Commission  Bill,  etc.  37 

11.  The  directors  are  authorized  to  declare  dividends 
without  limit,  except  (1)  that  no  dividend  shall  be  declared 
which  will  impair  the  capital  stock  of  a  bank  or  reduce 
the  amount  of  capital  stock  and  surplus  of  a  bank  to  less 
than  one-fifteenth  of  its  outstanding  national  land  bank 
bonds,  and  (2)  that  no  dividend  in  excess  of  6  per  cent. 
per  annum  shall  be  declared  by  any  bank  until  it  shall  have 
accumulated  a  surplus  of  at  least  15  per  cent,  of  its  au- 
thorized capital.  Special  provisions  are  made  for  co- 
operative national  farm  land  banks. 

12,  Every  national  farm  land  bank  is  prohibited  from 
establishing  branch  banks,  but  is  authorized  with  the  ap- 
proval of  the  Commissioner,  to  employ  and  maintain  agen- 
cies throughout  the  State  in  which  it  operates,  and  for  the 
sale  of  its  bonds  or  for  trading  in  the  same,  and  may 
maintain  sales  agents  or  agencies  outside  of  the  State  in 
which  it  operates. 

Second.     The  Siib-committee  Bill 

The  provisions  of  the  Sub-committee  Bill  may  be  sum- 
marized as  follows : 

1.  The  Federal  Reserve  Board  is  authorized  to  appoint 
a  farm  loan  commissioner,  and  the  Federal  Eeserve  Board 
is  given  the  supervisory  power  over  the  Commissioner  and 
the  system  of  land  banks  created  by  the  bill. 

2.  The  bill  authorizes  the  incorporation  of  national 
farm  loan  associations,  in  a  county  or  group  of  contiguous 
counties,  prescribed  by  the  Commissioner  of  Farm  Loans, 
with  capital  stock  of  not  less  than  $10,000,  divided  into 
shares  of  $25  each. 

3.  The  national  farm  loan  associations  are  authorized  to 
make  loans  only  to  persons  who  are  the  owners  of  at  least 
one  share  ($25)  of  the  association's  capital  stock,  and  the 
stock  owned  by  a  borrower  must  be  in  amount  not  less  than 
5  per  cent,  of  the  amount  of  the  loan;  loans  shall  not  be 
made  to  any  person  who  is  not  at  the  time  or  shortly  to 


38  Land  Credits 

become  a  bona  fide  resident  on  the  farm  mortgaged,  and 
permanently  engaged  in  the  cultivation  thereof  and  in 
case  of  sale  of  the  land  the  mortgage  becomes  due  unless 
assumed  by  a  purchaser  qualified  in  his  own  right  to  make 
a  loan  under  the  provisions  of  the  act.  Loans  must  be 
secured  by  first  mortgage;  they  shall  not  exceed  50  per 
cent,  of  the  value  of  the  land  and  25  per  cent,  of  the  value 
of  buildings  thereon;  they  shall  not  run  for  less  than  five 
nor  for  more  than  thirty  years;  they  must  be  paid  by 
annual  or  semi-annual  amortization  payments,  but  may 
be  paid  in  whole  or  in  part  at  any  interest  payment;  they 
can  be  made  only  (a)  to  liquidate  indebtedness  of  the 
owner  of  the  land  mortgaged,  existing  at  the  time  of  the 
organization  of  the  first  farm  loan  association  in  or  for 
the  county  wherein  the  land  is  located,  (b)  to  provide  for 
improvement  of  farm  lands,  (c)  to  provide  for  the  pur- 
chase of  equipment  and  livestock,  (d)  to  provide  for  the 
proper  and  reasonable  operation  of  the  farm,  and  (e)  to  pro- 
vide for  the  purchase  of  a  farmhome.  The  use  of  the  whole 
or  any  portion  of  the  money  secured  on  a  loan  for  any  other 
purpose  makes  the  mortgage  due  and  payable  forthwith. 

4.  The  Federal  Eeserve  Board  is  authorized  to  divide 
the  United  States  into  twelve  districts,  and  all  the  farm 
loan  associations  of  each  district  are  required  to  unite  in 
forming  a  Federal  land  banking  association  for  the  dis- 
trict, each  subscribing  at  least  $1,000  to  the  capital  stock 
of  the  Federal  land  bank  for  the  district,  which  must 
have  a  capital  stock  of  not  less  than  $500,000. 

5.  Every  Federal  land  bank  is  authorized  to  purchase 
farm  mortgages  upon  lands  within  its  district,  to  issue  and 
sell  farm-loan  bonds,  not  in  excess  of  twenty  times  the 
amount  of  its  capital  and  surplus,  secured  by  farm  mort- 
gages of  face  value  equal  to  amount  of  bonds  issued. 

6.  Federal  land  banks  are  allowed  to  declare  a  6  per 
cent,  annual  cumulative  dividend,  after  setting  aside  one- 
fourth  of  the  net  profits  as  a  general  reserve  fund.     Profits 


The  Commission  Bill,  etc.  39 

of  the  bank  in  excess  of  the  above  dividend  shall  be  paid 
to  the  United  States. 

7.  Farm  loan  associations  are  prohibited  from  charging 
an  interest  rate,  which  exceeds  the  legal  rate  current  in 
the  State  in  which  the  farm  land  securing  such  loan  is 
situated.  The  Federal  Reserve  Board  is  authorized  to  re- 
view and  alter  at  its  discretion  the  rate  of  interest  charged 
by  farm-loan  associations. 

8.  The  bill  provides  for  a  special  reserve  and  a  general  re- 
serve. When  the  rate  of  interest  on  loans  in  any  year  ex- 
ceeds by  more  than  1  per  cent,  the  rate  of  interest  on 
mortgage  bonds  issued  by  the  bank,  the  excess  after  deduct- 
ing the  1  per  cent,  shall  be  set  aside  as  a  special  "  reserve 
fund"  to  meet  losses  from  the  nonpayment  of  principal 
or  interest.  One-fourth  of  the  net  earnings  shall  be  set 
aside  semi-annually  as  a  general  "  reserve  account "  until 
the  same  shall  be  equal  to  30  per  cent,  of  the  outstanding 
capital  stock  of  the  bank. 

9.  The  trustees  of  the  United  States  postal  savings  de- 
positories are  authorized  to  purchase  Federal  farm  loan 
bonds  in  lieu  of  United  States  bonds  or  other  securities 
for  the  purpose  of  investing  postal  savings. 

10.  Federal  land  banks  are  required  to  pay  farm-loan  as- 
sociations one-half  of  1  per  cent,  per  annum  upon  notes 
secured  by  mortgages  purchased  from  said  associations  upon 
the  total  amount  unpaid  on  said  mortgages  at  the  time  the 
same  were  assigned  to  the  Federal  land  bank. 

11.  Every  Federal  land  bank  and  every  farm-loan  as- 
sociation, including  the  capital  stock,  reserve  or  surplus 
therein,  and  the  income  derived  therefrom,  is  made  ex- 
empt from  Federal,  State  and  local  taxation,  except  taxes 
upon  real  estate. 

12.  There  are  two  provisions  authorizing  the  use  of  the 
funds  of  the  Federal  government  in  establishing  and  operat- 
ing the  system  of  land  credits  proposed  by  this  bill,  viz. : 

a.     If  within  ninety  days  after  the  opening  of  the  sub- 


40  Land  Credits 

scription  books  the  minimum  amoimt  ($500,000)  of  capi- 
talization of  any  Federal  land  bank  shall  remain  unsub- 
scribed, the  Secretary  of  the  Treasury  is  authorized  to  sub- 
scribe the  said  unsubscribed  balance. 

h.  Upon  the  application  of  one  or  more  Federal  land 
banks,  and  upon  the  recommendation  of  the  Federal  Re- 
serve Board,  the  Secretary  of  the  Treasury  shall  purchase 
from  Federal  land  banks  farm-loan  bonds  in  an  amount  not 
to  exceed  $50,000,000  in  any  one  year. 

Third.     The  Senate  Committee  Bill 

The  Senate  Committee  Bill,  in  the  main,  is  a  combina- 
tion of  the  provisions  of  the  Commission  Bill  and  the 
Sub-committee  Bill.  It  authorizes  the  organization  of  any 
number  of  land  banks  corresponding  to  the  banks  author- 
ized in  the  Commission  Bill,  and  also  provides  for  a  sys- 
tem of  local  banks,  connected  with  twelve  district  banks. 
The  two  systems  of  banks,  wholly  disconnected  from  and 
independent  of  each  other,  would  be  brought  into  existence 
if  this  were  enacted  into  law.  The  provisions  of  this  bill 
may  be  thus  summarized: 

1.  The  bill  creates  a  Federal  farm  loan  board,  consist- 
ing of  the  Secretary  of  the  Treasury,  the  Secretary  of 
Agriculture,  and  the  Farm  Loan  Commissioner  which  the 
bill  authorizes  the  President  to  appoint. 

2.  National  farm  loan  associations,  each  with  capital 
stock  of  not  less  than  $10,000,  may  be  organized  in  a 
county  or  in  a  district  composed  of  a  group  of  contiguous 
counties. 

3.  National  farm  loan  associations  are  authorized  to 
make  loans  only  to  farmers  owning  at  least  one  share 
($25)  of  stock  in  the  association,  and  the  stock  owned 
must  be  equal  to  5  per  cent,  of  any  loan.  The  funds  de- 
rived from  a  loan  must  be  used  for  specific  purposes  as 
provided  in  the  Commission  Bill. 

4.  The  United  States  is  to  be  divided  into  twelve  dis- 


The  Commission  Bill,  etc.  41 

tricts.  In  these  several  districts  a  Federal  land  bank  is 
authorized  to  be  organized,  each  to  have  a  capital  stock  of 
not  less  than  $500,000. 

5.  Every  Federal  land  bank  is  authorized  to  purchase 
farm  mortgages  from  the  local  associations,  to  issue  and 
sell  farm  mortgage  bonds  not  in  excess  of  twenty  times  the 
amount  of  its  capital  stock  and  surplus. 

6.  Federal  land  banks  may  declare  annually  a  6  per  cent, 
cumulative  dividend,  after  one-fourth  of  the  net  profits 
has  been  set  aside  as  a  general  reserve  fund.  Excess 
profits  are  to  be  paid  to  the  United  States  except  as  to 
the  profits  of  Federal  farm  bond  banks. 

7.  The  interest  rate  must  not  exceed  the  legal  rate  cur- 
r"'nt  in  the  State  in  which  the  mortgaged  land  is  located. 
The  Federal  Farm  Loan  Board  reviews  and  alters  the  rate 
of  interest  charged. 

8.  The  normal  rate  of  interest  shall  be  established  by 
adding  1  per  cent,  to  the  rate  of  interest  specified  in  the 
latest  farm-loan  bonds  issued  in  said  district.  The  Fed- 
eral Farm  Loan  Board  is  authorized  to  establish  a  specific 
rate  of  interest  to  be  charged  in  a  particular  district.  The 
Federal  Farm  Loan  Board  is  authorized  to  fix  the  rate  of 
interest  on  land-mortgage  bonds. 

9.  A  special  reserve  fund  shall  be  provided  to  pay  losses 
in  each  district,  and  a  general  reserve  account  is  established 
by  setting  aside  annually  one-fourth  of  the  net  profits  to 
such  fund, 

10.  Trustees  of  United  States  postal  savings  depositories 
are  authorized  to  purchase  Federal  farm  loan  bonds  in  lieu 
of  United  States  bonds,  or  other  securities,  for  the  purpose 
of  investing  funds  in  postal  savings  depositories. 

11.  Federal  land  banks  are  required  to  pay  farm-loan 
associations  one-half  of  1  per  cent,  per  annum  on  notes 
secured  by  mortgages  purchased  from  said  associations,  on 
the  amount  unpaid  on  mortgages  at  time  of  purchase. 

12.  Every  Federal  farm  land  bank,  and  every  farm  loan 


42  Land  Credits 

association,  its  capital  stock,  reserve  and  surplus  therein, 
and  the  income  derived  therefrom,  its  mortgages  and  bonds, 
shall  be  exempt  from  Federal,  State  and  local  taxation. 
This  exemption  does  not  apply  to  real  estate. 

13.  If  within  ninety  days  after  the  opening  of  subscrip- 
tion books  the  minimum  amount  ($500,000)  of  the  capital- 
ization of  any  Federal  land  bank  has  not  been  subscribed, 
the  Secretary  of  the  Treasury  is  authorized  to  subscribe 
the  balance  unsubscribed, 

14.  Authority  is  given  for  the  organization  of  Federal 
farm  bond  banks,  each  with  a  capital  stock  of  not  less  than 
$250,000.  They  are  required  to  limit  their  loans  to  the 
States  in  which  they  are  located.  There  is  no  limit  as 
to  the  number  of  these  banks  that  may  be  organized  in  a 
State.  They  will  be  wholly  independent  of  each  other  and 
in  no  way  connected  with  the  system  of  farm  loan  associa- 
tions and  Federal  land  banks  described  above.  But  so  far 
as  applicable  they  are  subject  to  the  same  limitations  and 
restrictions.  In  general,  the  Federal  farm  bond  banks  are 
the  same  as  the  national  farm  land  banks  authorized  by  the 
Commission  Bill,  but  are  required  to  have  a  minimum 
capital  of  $250,000,  instead  of  $100,000  required  of  na- 
tional farm  land  banks. 

How  These  Three  Bills  Differ 

The  following  shows  how  these  bills  differ  along  general 
lines : 

1.  These  three  bills  differ  in  the  supervisory  power. 

a.  Under  the  Commission  Bill  the  Commissioner  of 
Farm  Land  Banks,  under  the  direction  of  the  Secretary  of 
the  Treasury,  constitutes  the  supervisory  power. 

6.  Under  the  Sub-committee  Bill  the  National  Farm 
Loan  Commissioner,  under  the  direction  of  the  Federal  Ee- 
serve  Board,  is  the  supervisory  power. 

c.  Under  the  Senate  Committee  Bill  the  Farm  Loan 
Commissioner,  under  the  direction  of  the  Federal  Farm 


The  Commission  Bill,  etc.  43 

Loan  Board,  consisting  of  the  Commissioner,  the  Secre- 
tary of  the  Treasury  and  the  Secretary  of  Agriculture,  con- 
stitutes tlie  supervisory  power. 

2.  They  differ  in  the  provisions  relating  to  the  rate  of 
interest  on  loans  and  bonds. 

a.  The  Commission  Bill  contains  no  provision  con- 
trolling interest  rates  on  bonds,  and  no  provision  restricting 
interest  rates  on  mortgages  except  that  the  interest  charge 
shall  not  exceed  by  more  than  1  per  cent,  per  annum  the 
interest  rate  on  bonds. 

h.  The  Sub-committee  Bill  provides  that  the  interest 
rate  shall  not  exceed  the  legal  rate  current  in  the  State 
where  the  loan  is  made,  and  authorizes  the  Federal  Eeserve 
Board  to  review  and  alter  the  rate  of  interest  charged  by 
farm  loan  associations. 

c.  The  Senate  Committee  Bill  limits  interest  to  legal  rate 
current  in  the  State  where  the  land  is  located,  gives  the 
Federal  Farm  Loan  Board  the  power  to  review  and  alter 
the  interest  rate  on  mortgages  and  power  to  fix  interest 
rate  on  bonds,  and  authorizes  the  Farm  Loan  Commissioner 
to  establish  a  "  specific  rate,"  for  any  particular  district, 
higher  than  the  normal  rate,  and  declares  that  the  normal 
rate  of  interest  shall  be  established  by  adding  1  per  cent. 
to  the  rate  of  interest  specified  in  the  latest  issue  of  farm- 
loan  bonds. 

3.  They  differ  as  to  limitation  of  dividends  and  profits. 
a.  The  Commission  Bill  in  no  way  limits  the  amount  of 

dividends  that  may  be  declared,  but  limits  those  dividends 
to  6  per  cent,  per  annum  until  a  bank  shall  have  accumu- 
lated a  surplus  equal  to  at  least  15  per  cent,  of  its  au- 
thorized capital,  and  declares  that  no  dividend  shall  be 
declared  which  will  impair  the  capital  stock  of  a  bank,  or 
reduce  the  amount  of  the  capital  stock  of  a  bank  to  less 
than  one-fifteenth  the  amount  of  its  outstanding  national 
land  bank  bonds. 

&.  The  Sub-committee  Bill  in  no  way  limits  the  profits 


44  Land  Credits 

of  shareholders  in  local  farm-loan  associations  but  limits 
the  dividends  of  Federal  land  banks  to  a  6  per  cent,  an- 
nual cumulative  dividend,  after  setting  aside  one-fourth  of 
the  net  profits  as  a  general  reserve  fund,  and  profits  in  ex- 
cess thereof  shall  be  paid  to  the  United  States. 

c.  The  provisions  in  the  Senate  Committee  Bill  relative 
to  dividends  and  profits  are  essentially  the  same  as  in  the 
Sub-committee  Bill. 

4.  They  difi'er  in  system  of  banks  authorized. 

a.  The  Commission  Bill  authorizes  the  formation  of  any 
number  of  national  farm  land  banks  in  any  State,  giving 
absolute  freedom  as  to  the  number  and  location  of  such 
banks,  except  the  organization  thereof  must  be  approved  by 
the  Commissioner. 

h.  The  Sub-committee  Bill  authorizes  the  organization 
of  (1)  Local  farm-loan  associations,  and,  (2)  of  twelve 
Federal  land  banks,  in  twelve  districts  to  be  made.  The 
loans  are  to  be  made  exclusively  through  the  local  associa- 
tions and  bonds  are  to  be  issued  exclusively  through  the 
twelve  Federal  land  banks.  The  local  associations  are  re- 
quired to  subscribe  to  the  stock  of  the  Federal  land  bank 
in  their  respective  districts,  and  in  this  way  both  form  a 
part  of  the  same  system. 

c.  The  Senate  Committee  Bill  authorizes  the  same  kind 
of  local  associations  and  Federal  land  banks  as  in  the  Sub- 
committee Bill,  but  in  addition  thereto  authorizes  the  or- 
ganization of  independent  Federal  farm-bond  banks,  which 
in  themselves  correspond  with  the  national  farm-loan  banks 
in  the  Commission  Bill. 

5.  They  differ  in  limitation  on  the  amount  of  bonds  that 
may  be  issued. 

a.  The  bonds  to  be  issued  under  the  Commission  Bill 
must  not  be  in  excess  of  15  times  the  amount  of  the  capital 
stock  and  surplus  of  the  bank  issuing  the  bonds. 

6.  Under  both  the  Sub-committee  and  the  Senate  Com- 
mittee Bills  the  bonds  may  be  equal  to  twenty  times  the 


The  Commission  Bill,  etc.  45 

capital  stock  and  surplus  of  the  bank  issuing  the  bonds. 

6.  The  bills  differ  in  government  aid  features. 

a.  The  Commission  Bill  in  no  way  provides  for  the  direct 
use  of  government  funds  to  aid  the  system  of  land  banks, 
except  m  the  amount  of  money  to  be  expended  by  the  de- 
partment in  supervising  such  banks. 

h.  Under  the  Sub-committee  Bill  government  funds  may 
be  used  under  certain  conditions,  in  subscribing  to  the  capi- 
tal stock  of  the  banks  and  in  the  purchase  of  farm-mort- 
gage bonds,  and  also  in  supervising  the  business  of  the 
banks. 

c.  Under  the  Senate  Committee  Bill  the  government 
funds,  under  certain  conditions,  may  be  used  in  subscrip- 
tions to  the  capital  stock  of  the  Federal  land  banks,  and 
in  supervising  the  business  of  the  land  banks. 

7.  They  differ  in  provisions  making  mortgage  bonds 
available  as  investments, 

a.  The  Commission  Bill  makes  the  bonds  issued  by  na- 
tional land  banks  available  as  investments  for  postal  sav- 
ings funds,  time  deposits  in  national  banks,  funds  and 
estates  in  the  hands  of  United  States  courts,  and  as  secur- 
ity for  loans  from  national  banks  not  to  exceed  35  per  cent, 
of  the  bank's  capital  and  surplus,  and  authorizes  the  trus- 
tees of  the  postal  savings  depositories  to  purchase  these 
bonds  in  lieu  of  government  bonds  or  other  securities. 

h.  In  both  the  Sub-committee  Bill  and  the  Senate  Com- 
mittee Bill  the  trustees  of  the  United  States  savings  de- 
positories are  authorized  to  invest  the  funds  of  the  deposi- 
tories in  mortgage  bonds  in  lieu  of  United  States  govern- 
ment bonds  or  other  securities.  Mortgage  bonds  are  made 
lawful  investment  for  all  trust  funds. 

How  These  Bills  Agree 

The  Commission  Bill,  the  Sub-committee  and  the  Senate 
Committee  Bills  agree  in  some  important  particulars. 
1.  They  agree  in  the  nature,  in  the  kind,  and  in  the 


46  Land  Credits 

character  of  the  banks  to  be  created  —  they  all  propose  to 
establish  purely  private  banks,  operated  for  profit,  with  no 
altruistic  aim  in  view. 

2.  They  all  create  a  new  bureau  of  the  Federal  govern- 
ment, to  be  operated  at  the  expense  of  the  Government, 
to  supervise  and  regulate  the  business  of  these  banks, 

3.  They  all  exempt  the  banks,  their  capital  stock,  sur- 
pluses, reserves,  bonds,  notes,  mortgages,  and  incomes  there- 
from, from  Federal,  State,  and  local  taxation,  except  as  to 
taxes  on  real  estate. 

4.  None  of  these  bills  names  the  rate  of  interest  which 
either  the  mortgages  or  bonds  shall  bear,  or  establishes  a 
maximum  rate  of  interest  on  mortgages  or  bonds. 

5.  All  of  these  bills  authorize  the  issue  of  farm-mortgage 
bonds  to  be  secured  by  first  mortgages  upon  farm  lands,  not 
in  excess  of  50  per  cent,  of  the  value  of  the  land  mort- 
gaged. 

6.  None  of  them  authorizes  loans  to  be  made  in  excess  of 

thirty-five  years. 

7.  All  of  them  require  that  the  principal  of  the  loans 
shall  be  paid  by  annual  or  semi-annual  amortization  pay- 
ments, but  permit  borrowers  at  the  time  of  any  interest 
payment  to  pay  any  part  or  all  of  his  loan  after  five  years 
from  the  date  of  the  loan. 

8.  They  all  require  the  money  secured  by  a  loan  to  be 
used  to  pay  off  existing  liens  on  the  land,  to  provide  build- 
ings, equipment  and  stock,  or  other  things  which  will  en- 
able the  borrower  to  make  his  farm  more  productive  and 
profitable. 

9.  None  of  these  bills  authorizes  the  land  banks  to  ac- 
cept deposits  from  the  general  public  or  engage  in  general 
banking  business  except  the  Commission  Bill,  which  au- 
thorizes the  land  banks  to  receive  deposits  up  to  one-half 
their  capital  and  surpluses. 

10.  All  of  them  require  that  no  loan  shall  exceed  50  per 
cent,  of  the  value  of  the  land  mortgaged. 


The  Commission  Bill,  etc.  47 

11.  All  require  loans  shall  be  made  only  upon  first- 
mortgage  security. 

Defects  and  Objections 

The  fundamental  plans  of  these  bills  have  been  pre- 
sented. The  essential  points  upon  which  they  differ  have 
been  set  forth.  The  next  step  is  to  point  out  the  defects 
of  these  bills,  to  show  the  objections  thereto,  and  to  give 
the  reasons  why  none  of  these  bills,  or  any  combination  of 
the  essential  features  of  all  of  them,  should  be  adopted  as  a 
basis  for  the  land-credit  system  of  the  United  States. 

Some  of  the  principal  objections  to  these  three  "  ofBcially 
endorsed  bills "  may  be  enumerated  as  follows : 

First.  They  propose  to  establish  purely  private,  profit- 
sharing,  dividend-paying,  surplus-creating  banks  as  the  na- 
tional instrument  to  control,  conduct,  operate,  direct,  and 
dominate  the  land-credit  system  of  this  country. 

Second.  These  bills  propose  to  create  a  system  of  land 
banks  which  will  not  provide  adequate  credit  for  the  farm- 
ers of  the  United  States. 

Third.  The  land  banks  which  these  bills,  if  enacted  into 
law,  would  create  can  not  be  economically  administered. 

Fourth.  These  bills  propose  to  create  a  system  of  "  com- 
petitive" land  banks,  which  would  place  the  farmers  in 
competition  with  each  other  in  the  sale  of  their  securities, 
but  would  not  give  the  farmers  any  effective  competition  in 
interest  rates  on  their  farm  loans. 

Fifth.  The  provisions  of  these  bills  do  not  provide  for 
the  creation  of  an  ample  reserve  fund  or  guaranty  fund  to 
meet  all  possible  losses  in  the  payment  of  principal  and  in- 
terest on  loans,  or  that  will  give  investors  confidence  in  the 
absolute  safety  of  farm-mortgage  securities. 

Sixth.  These  bills  provide  for  a  multiplicity  of  bond-is- 
suing banks  which  will  reduce  the  amount  of  credit  ex- 
tended to  agriculture  and  increase  the  rate  of  interest  paid 
by  farmers  on  their  farm-mortgage  loans. 


48  Land  Credits 

Seventh.  The  Commission  Bill  proposes  no  direct  goV' 
ernment  aid  to  our  land-credit  system,  and  the  bond-pur- 
chasing provision  of  the  Sub-committee  Bill  is  not  desirable 
from  the  viewpoint  of  the  Federal  government,  and  neither 
is  it  the  kind  of  aid  that  will  render  any  substantial  serv- 
ice to  the  farmer. 

There  are  many  other  objections  which  will  be  referred  to 
in  the  succeeding  chapters.  In  the  main,  the  discussion 
will  center  around  the  above  propositions.  If  the  land- 
credit  plans  proposed  in  these  three  "  officially  endorsed 
bills  "  are  defective  in  the  points  above  set  forth,  or  in  any 
material  part  thereof,  then  the  proposed  plans  should  be 
abandoned  or  materially  modified. 


CHAPTER  V 

TYPE  OF  INSTITUTION 

Our  land-credit  institutions  should  be  public,  or  semi- 
public,  non-profit-sharing  institutions,  designed  primarily 
to  serve  borrowers,  not  lenders,  to  aid  farmers  not  investors, 
and  to  promote  agriculture,  not  to  provide  profits  for  pri- 
vate banking  institutions. 

The  three  "  officially  endorsed  "  bills  propose  to  create 
purely  private  banking  institutions,  organized  for  profit, 
owned,  operated,  and  controlled  by  private  capital,  as  the 
instruments  to  provide  agriculture  with  proper  credit 
facilities.  These  three  bills,  therefore,  fundamentally 
agree.  They  propose  the  same  type  of  an  institution.  The 
authors,  proponents,  and  advocates  of  these  three  bills  are 
not  far  apart,  when  they  agree  upon  the  kind  and  charac- 
ter of  institution  to  be  created. 

The  corporate  institution,  whatever  may  be  its  name  — 
which  shall  be  created  as  the  governmental  instrument 
to  promote  land  credit,  stands  as  the  middleman  between 
the  farmer  and  the  investor.  The  farmer  above  all  others 
has  a  just  right  to  be  suspicious  of  middlemen.  Every 
farmer  is  a  producer.  The  farmers'  products  pass  through 
many  hands  before  they  reach  consumers.  The  things 
which  farmers  buy,  pass  through  many  hands,  numerous 
avenues  and  many  processes  before  they  reach  the  farmers. 
The  merchant  buys  at  wholesale  and  sells  at  retail.  The 
farmer  sells  at  retail  and  buys  at  retail.  In  this  country, 
unlike  in  many  European  countries,  our  farmers  have  made 
little  progress  in  collective  buying  and  selling.     The  farmer 

49 


^o  Land  Credits 

gets  for  his  products  only  about  45  per  cent,  of  the  price 
paid  therefor  by  consumers.  I  do  not  charge  that  middle- 
men ordinarily  make  excessive  charges.  It  is,  however, 
unquestionably  true  that  from  the  farmer's  view  point,  our 
system  of  purchasing,  transporting,  manufacturing,  and 
distributing  farm  products  is  complex,  complicated  and 
expensive.  No  one  in  particular  is  to  blame  for  this. 
Other  lines  of  business  have  become  highly  organized  and 
concentrated.  The  whole  tendency  has  been  towards  unity 
and  concentration.  HeretofcT-e,  the  farmer's  credit  has 
been  a  haphazard  affair.  He  has  secured  a  little  here  and 
a  little  there.  Individuals,  commercial  banks,  insurance 
companies,  loan  companies,  agents,  merchants,  and  so  on, 
have  supplied  the  farmers  with  such  credit  as  they  have 
had.  There  has  been  neither  system  in  loans  nor  standardi- 
zation in  rates  of  interest.  The  farmer  has  been  left  to 
"  hoe  his  own  row."  The  main  sources  of  credit  have  been 
largely  used  in  business  and  commerce,  in  Federal,  State 
and  municipal  affairs,  and  in  financing  speculative  under- 
takings. The  farmer  has  been  crowded  out.  He  has  had 
to  shift  for  himself.  He,  from  the  very  nature  of  things, 
could  not  compete  with  other  industrial  forces  for  credit. 
He  took  the  crumbs.  That  the  farmers  have  paid  exces- 
sive rates  of  interest,  will  not  be  denied;  that  they  have 
frequently  paid  usurious  rates  of  interest  can  be  conclu- 
sively shown;  that  the  business  of  the  farmer  has  been 
greatly  retarded  through  lack  of  credit,  at  reasonable  rates, 
is  unquestionably  true.  Now,  this  matter  is  to  be  taken  in 
charge  by  the  national  government.  The  wrongs  are  to  be 
righted.  Behold !  The  first  plan  of  land  credit  to  receive 
serious  consideration  by  Congress  proposes  to  create  a  sys- 
tem of  purely  private  land  banks,  organized  for  gain,  con- 
ducted for  profit,  controlled  by  shareholders,  like  men  in 
all  other  kinds  of  private  business,  whose  greatest  purpose 
must  be  to  provide  dividends,  and  create  surpluses,  undi- 
vided profits,  and  reserves  that  will  augment  the  value  of 


Type  of  Institution  151 

the  capital  stock.  Are  such  institutions  the  kind  the  farm- 
ers want?  Is  this  the  best  the  Congress  of  the  United 
States  can  give  the  farmers  ?  Will  banks  of  this  character 
be  any  improvement  over  the  middlemen  institutions,  which 
deal  with  the  farmers  in  other  lines  of  business?  Is  not 
the  farmer  entitled  to  get  his  credit  at  cost?  May  he  not 
Justly  ask  that  in  selling  his  securities  and  in  purchasing 
his  credit,  there  shall  be  no  profits  go  to  middlemen  ?  May 
not  the  farmers  justly  insist  that  Congress  shall  not  erect 
between  them  and  investors  a  system  of  private  land 
banks,  with  power  to  control  the  amount  of  credit,  and  the 
cost  thereof  ?  Are  not  the  farmers  entitled  to  an  impartial, 
unselfish,  altruistic  intermediary  to  act  between  them  and 
investors?  Should  not  Congress  eliminate  middlemen's 
profits  in  one  thing  the  farmers  have  to  sell  —  securities, 
and  in  the  one  thing  they  have  to  buy  —  credit  ?  The 
farmers  are  willing  to  pay  all  it  costs  to  secure  credit. 
They  should  pay  no  more.  Whatever  else  is  added,  is  un- 
just. Whatever  capital  is  required  in  operating  a  land- 
credit  system  is  entitled  to  compensation.  Farmers  will 
not  ask  that  the  capital  of  private  individuals  shall  be  used 
in  a  system  of  land  credit,  without  the  payment  of  fair  in- 
terest thereon.  Interest  on  working  capital  is  a  part  of 
the  cost  of  any  system  of  land  credit.  The  farmers  are 
willing  to  pay  this  interest.  This  is  all  that  should  be 
asked  of  them.  It  may  be  asserted  that,  under  the  pro- 
visions of  the  Commission  Bill,  the  Sub-committee  Bill  and 
the  Senate  Committee  Bill,  dividends  are  limited.  This  is 
true,  in  a  way.  But  these  banks  are  required  to  create  re- 
serves and  surpluses.  Eeserves,  surpluses,  and  undivided 
profits  give  strength  to  a  bank,  and  the  public  confidence 
therein.  They  likewise  give  additional  value  to  the  capital 
stock  of  the  banks.  Eeserves,  surpluses,  and  undivided 
profits  are  contributed  by  the  farmers.  The  stockholders 
of  the  banks  contribute  nothing  thereto  —  except  through 
careful  and  wise  management.     If  the  farmers,  through 


52 


Land  Credits 


commissions,  interest,  amortization  payments,  administra- 
tive and  other  charges,  pay  an  annuity  sufficient  to  create  re- 
serves, surpluses,  and  undivided  profits  —  why  should  not 
all  these  be  set  aside  to  the  credit  of  farmers  —  to  add  to 
the  confidence  which  investors  have  in  farm  mortgages  — 
and  not  to  add  value  to  the  stock  which  shareholders  own 
in  private  banking  institutions?  Besides,  the  farmers 
must  not  be  deceived  in  the  character  of  the  proposed  land 
banks,  by  the  provisions  which  limit  the  amount  of  annual 
dividends  that  may  be  declared.  There  are  legal  ways  of 
getting  money  out  of  banks  other  than  by  declaring  divi- 
dends. If  banks  are  limited  in  the  amount  of  dividends 
they  may  declare,  they  will  have  less  inducement  to  econo- 
mize, if  not  actual  encouragement  to  spend  money  unneces- 
sarily in  other  directions.  A  land  bank,  like  any  other 
business  institution,  must  pay  out  money  for  many  pur- 
poses. These  banks  are  authorized  to  purchase  real  estate 
and  erect  buildings  thereon  in  which  to  do  business.  The 
buildings  must  be  furnished.  Equipment,  apparatus,  sta- 
tionery, and  other  facilities  must  be  provided.  Men  must 
be  employed.  Salaries  must  be  paid.  Upon  what  scale 
is  all  this  to  be  done?  The  farmers  pay  for  it;  they  are 
interested.  The  shareholders  and  the  officers  and  manag- 
ers of  the  bank  do  not  pay  for  it;  they  are  not  financially 
interested.  They  would  be,  if  the  law  did  not  limit  the 
amount  of  the  dividends  the  banks  might  declare.  Be- 
cause, in  that  case,  any  amount  saved  in  management  could 
be  paid  out  in  dividends.  The  plan  of  protecting  the 
farmer  by  limitation  of  dividends  is  of  doubtful  utility  and 
benefit.  It  is  contrary  to  the  policy  of  the  Federal  govern- 
ment to  limit  profits  in  private  business.  Why  then  should 
this  be  applied  to  private  land  banks  ?  National  and  State 
banks  are  not  limited  in  the  amount  of  dividends  they  may 
pay,  nor  in  the  amount  of  surpluses  and  undivided  profits 
they  may  accumulate.  In  principle,  the  proposed  land 
banks  and  our  commercial  banks  are  alike.     The  wisdom 


Type  of  Institution  53 

of  this  provision  is  doubtful.  It  would  give  a  far  greater 
incentive  to  bankers  to  exercise  energy,  skill,  industry,  and 
economy  in  the  management  of  these  land  banks  if  some 
other  method  could  be  used  to  prevent  high  rates  of  interest 
and  excessive  charges  for  other  purposes.  Not  only  would 
it  be  better  for  the  bankers,  but  far  safer  and  more  effec- 
tive for  the  farmers.  This  might  be  done  by  fixing  by  law 
the  rate  or  the  maximum  rate  of  interest  a  bank  could 
charge,  or  a  governmental  board  might  be  authorized  to  fix 
the  rate  of  interest.  This  would  protect  the  farmers  from 
excessive  interest  rates  and  give  the  land  banks  perfect 
freedom  in  business  management,  placing  them  in  a  posi- 
tion to  receive  the  Just  rewards  for  the  display  of  superior 
energy,  greater  skill,  more  industry,  higher  efficiency,  and 
better  judgment  in  conducting  business.  All  this  difficulty 
can  be  avoided  by  creating  non-profit-sharing,  land-credit 
institutions  as  the  corporate  instrument  to  collect  the  mort- 
gage securities  of  the  farmers,  transform  these  mortgages 
into  bonds,  and  negotiate  the  sale  of"  these  bonds  among 
investors.  The  men  who  operate  this  land-credit  corpora- 
tion must  be  paid  for  their  services.  They  need  not  have 
financial  interest  in  the  concern.  The  directors,  managers, 
officers,  and  employees  should  be  largely  like  public  of- 
ficials, paid  a  salary  for  the  performance  of  a  public  trust. 
Such  an  institution,  so  far  as  possible,  would  reduce  the 
cost  of  the  service  rendered  by  middlemen,  give  the  farm- 
ers their  credit,  so  far  as  possible,  at  actual  cost,  and  give 
the  farmers  an  institution  which  they  could  rightfully  call 
their  own,  in  which  they  would  take  a  natural  pride,  and 
around  which  they  would  rally  in  their  support  in  a  way 
that  will  never  be  possible  toward  private  banking  institu- 
tions. 

European  land-credit  institutions  are  largely  public  or 
semi-public  corporations  and  are  non-profit-sharing.  Ger- 
many admittedly  leads  all  other  nations  in  the  credit  fa- 
cilities she  has  provided  for  her  farmers  of  all  classes. 


CA  Land  Credits 

The  principles  upon  which  her  institutions  were  founded 
have  stood  the  test  of  time.  There  will  be  profit  in  ascer- 
taining the  character  of  the  land-credit  institutions  of  the 
German  Empire, 

Cahill  in  his  report,  Agricultural  Credit  and  Coopera- 
tion in  Germany,  Senate  Doc.  17,  page  11,  63rd  Congress, 
referring  to  the  character  of  the  land-credit  institutions  of 
Germany  says: 

"  Setting  aside  for  the  moment  the  joint-stock  mortgage 
banks,  the  whole  of  these  agencies  are  in  the  nature  of 
governmental,  non-profit-seeking  institutions  —  using  the 
word  '  governmental '  in  a  sense  that  would  comprise  the 
State,  provincial,  district,  municipal  (or  communal)  au- 
thority as  well  as  those  corporations  of  landowners  which 
rank  as  public  bodies," 

On  the  same  page  Mr.  Cahill  classifies  Germany's  land- 
credit  institutions  as  follows : 

"  The  various  agencies  may  be  divided  into  three  main 
classes  according  to  the  purposes  for  which  their  loans  are 
granted.  In  the  first  class  there  are  four  groups  of  insti- 
tutions, namely,  the  land  mortgage  credit  associations 
(Landschaften),  the  State,  provincial,  and  district  mort- 
gage credit  banks,  the  joint-stock  mortgage  banks,  and  the 
savings  banks,  all  of  which  grant  mortgage  credit  without 
requiring,  in  ordinary  circumstances,  any  declaration  as  to 
the  purpose  of  the  loan.  The  second  group  comprises  the 
land  improvement  funds,  the  land  improvement  annuity 
banks,  the  provincial  aid  banks,  and  the  imperial  insurance 
institutions,  all  of  which  gi'ant  loans,  mainly  for  specific 
land  improvement  or  building  undertakings.  The  third 
group  is  that  of  the  rent-charge  banks,  which  are  concerned 
with  loans  in  connection  with  the  creation  and  equipment  of 
small-holdings." 

There  are  in  Germany  twenty-three  Landschaften,  or 
land  mortgage  credit  associations;  there  are  sixteen  State, 
provincial  or  district  mortgage   credit  banks;  there   are 


Type  of  Institution  55 

2,844  public  and  288  other  savings  banks;  there  are  in    \ 
most  provinces  land  improvement  funds  or  land  improve-     | 
ment  annuity  banks;  there  are  provincial  aid  banks^  rent 
charge  banks;  and  finally  the  joint-stock  mortgage  banks. 
Practically  all  of  these  land-credit  banks  and  institutions 
are  public  or  semi-public  corporations  or  associations.     The     ,_^ 
only  important   exceptions   are   the   joint-stock  mortgage 
banks.     There  are  thirty-seven  of  these.     Their  loans  are 
largely  upon  urban  property.     In  1911,  only  about  6  per      ^ 
cent,  of  their  outstanding  loans  were  secured  by  mortgages      \ 
upon  rural  property.     Furthermore  in  1909,  91  per  cent.       I 
of  all  rural  loans  made  by  these  thirty-seven  joint-stock       \ 
mortgage  banks  were  made  by  one  Prussian  and  seven        \ 
Bavarian    banks.     The    joint-stock    mortgage    banks    are         j 
virtually  the  only  private,  profit-sharing,  land-credit  in-       y 
stitutions  in  Germany.     Their  business  is  almost  exclusively      j 
confined  to  loans  upon  town  and  city  real  estate. 

Dr.  Kapp-Konigsberg,  S.  Doc.  214,  63rd  Congress,  page 
383,  says: 

"  The  Landschaften  do  not  carry  on  their  business  for 
gain.  They  are  satisfied,  on  the  contrary,  with  such  a  use 
of  their  energies  as  reimburses  them  for  their  own  outlays. 
.  .  .  The  interest  which  the  incorporated  landowners  have 
in  getting  loans  on  as  easy  terms  as  possible  is  the  ruling 
force  for  the  entire  business  activity  of  the  Landschaft." 
On  page  384,  S.  Doc.  214,  63rd  Congress,  Dr.  Kapp- 
Konigsberg  further  says  of  the  Landschaften :  "  In  their 
unselfish,  public-spirited  labors,  free  from  every  tendency 
to  profit-making,  they  render  the  most  important  services 
to  the  State  by  preserving  a  vigorous  and  healthy  agricul- 
ture." 

Mr.  Cahill  in  his  report  (S.  Doc.  17,  page  75,  63rd  Con- 
gress), referring  to  the  German  savings  banks,  says: 

"  They  have  been  established  usually  by  and  under  the 
guaranty  of  public  authorities,  and  in  normal  cases  do 
not  aim  at  profits  beyond  the  obtaining  of  an  adequate  in- 


'^6  Land  Credits 

terest  upon  money  deposited  with  them  and  the  payment 
of  the  expenses  of  management.  Any  surplus  remaining 
after  meeting  these  charges  and  making  suitable  appropria- 
tions to  reserve  are  applied  to  objects  of  public  welfare. 
In  primary  aim  they  are  distinguishable  from  banks  in  the 
ordinary  sense  of  the  term  —  they  seek  deposits  not  in 
order  to  be  in  a  position  to  grant  credit  for  their  own 
profits,  but  to  foster  thrift  and  only  to  utilise  deposits  for 
investments  in  the  interests  of  the  depositors  themselves." 

Further,  on  page  76,  he  says : 

"  The  great  majority  of  savings  banks  are  communal, 
district,  or  urban,  and  are  public  institutions  established, 
supervised,  or  managed,  and  guaranteed  by  these  govern- 
mental units,  apart  from  which  they  do  not  possess  a  sep- 
arate legal  status." 

The  Credit  Foncier  of  France  is  a  profit-sharing  in- 
stitution, but  can  not  be  said  to  be  a  purely  private  bank. 
It  has  many  of  the  characteristics  of  a  public  institution. 

1.  The  State  contributed  $2,000,000  toward  its  founding. 

2.  It  was  given  a  monopoly  for  twenty-five  years.  3.  Spe- 
cial privileges  were  conferred  upon  it.  4.  In  1854  a  decree 
was  issued  authorizing  the  Emperor  of  France  to  appoint 
the  President,  and  two  vice-presidents  of  the  institution, 
and  requiring  that  three  of  its  directors  should  be  selected 
from  the  Ministry  of  Finance.  5.  It  may  use  without 
charge  internal  revenue  officers  in  remitting  interest  to 
holders  of  debentures  and  in  collecting  dues  from  bor- 
rowers. An  institution  so  dominated  and  controlled  by  the 
national  government  of  France  can  not  be  regarded  as  a 
private  banking  institution. 

The  chief  land-credit  institutions  of  Austria  are  modeled 
after  the  Landschaften  of  Prussia,  and  hence  are  public 
institutions  and  non-profit-sharing.  There  are  at  present 
seventeen  of  these  provincial  land  banks.  The  character  of 
these  institutions  is  shown  by  the  statement  of  Friedrich 
Eedl,   director  of  the   Provincial   Mortgage  Institute   of 


-o"o^ 


Type  of  Institution  157 

Lower  Austria^  in  Senate  Doc.  214,  63rd  Congress,  page 
197,  as  follows: 

"  The  object  of  the  institute  is  to  make  loans  on  real 
estate,  without  hypothecation,  and  with  fixed  rates  of  in- 
terest. The  institute  is  not  for  gain,  it  is  not  a  profit-earn- 
ing company  like  any  other  share  company." 

"  The  principal  features  of  the  institute  are  as  follows : 
First,  absolutely  no  motive  for  gain ;  second,  the  borrower 
is  not  required  to  give  notice  of  intention  to  repay;  third, 
the  rate  of  interest  each  borrower  has  to  pay  is  invariable 
and  can  not  be  altered;  fourth,  compulsory  repayment, 
the  borrower  being  compelled  to  pay  interest  as  well  as 
loan  in  installments." 

The  Austrian  Minister  of  Agriculture  in  a  statement  (S. 
Doc.  214,  63rd  Congress,  page  180)  referring  to  the  banks 
of  Austria,  says: 

"  The  banks  operating  for  profit  received  slow  and  scant 
returns  on  their  investments  in  average  agricultural  hold- 
ings, so  that  these  sources  of  credit  remained  exclusively 
open  to  the  large  agricultural  estates  up  to  the  present  day 
for  the  reason  that  these  estates  became  more  and  more 
industrialized  and,  consequently,  better  able  to  pay  the 
high  rates  of  interest  demanded  by  the  banks." 

He  further,  in  referring  to  the  Provincial  Mortgage  In- 
stitution of  Lower  Austria,  says  (S.  Doc.  214,  63rd  Con- 
gress, pages  189,  190),  as  follows: 

"  The  provincial  mortgage  institution  aims  to  grant  loans 
without  profit.  It  endeavors  to  secure  for  the  communities 
money  at  low  rates  of  interest  without  waste  of  time  or 
costs.  The  nature  of  the  loan  is  therefore  sub-ordinated 
to  this  purpose." 

"  The  provincial  mortgage  institution  endeavors  to  allevi- 
ate the  negotiation  of  loans  and  to  assist  the  borrower  as 
much  as  possible.  In  the  accomplishment  of  these  aims  it 
attempts  by  special  office  days  and  through  its  confidential 
men  and  appraising  officials  to  remain  in  constant  touch 


^8  Land  Credits 

with  the  population  with  a  view  to  keeping  down  the  costs 
in  the  contraction  of  loans.  In  cases  of  appraisements  of 
real  property  in  distant  places,  the  institution  pays  the 
traveling  expenses  of  its  officials,  attends  to  the  registra- 
tion of  small  holdings,  and  charges  only  the  necessary 
stamp  tax  required  of  the  borrower.  The  institution  grants 
payment-time  extensions  in  cases  of  damages  by  the  ele- 
ments, attends  to  collections  of  arrears  free  of  charge,  ex- 
ecutes documents,  grants  reductions  in  the  managing  ex- 
penses, attends  to  the  disposal  of  its  securities  at  the  small- 
est possible  margin,  and,  by  special  efforts,  seeks  to  main- 
tain the  popularity  of  the  securities  of  the  institution." 

The  Hungarian  Boden-Credit  Institute  of  Budapest  with 
loans  amounting  to  $119,000,000  and  with  outstanding 
bonds  amounting  to  $100,000,000  is  a  public  credit  insti- 
tution. 

The  National  Land  Credit  Institute  for  Small  Land- 
owners of  Hungary  is  a  public  institution  and  has  made 
loans  exceeding  $54,000,000.^ 

Italy's  land-credit  system  is  largely  conducted  by  non- 
profit-sharing institutions. 

In  Sweden  the  land-credit  system  consists  of  landowners' 
mortgage  associations.  There  are  ten  of  these  in  existence. 
They  are  private  associations,  but  have  no  capital  stock  and 
are  non-profit-sharing.  However,  these  associations  are 
connected  with  the  Swedish  General  Mortgage  Bank,  which 
was  founded  by  the  State  as  a  central  institution  to  aid  in 
financing  the  local  associations,  especially  in  the  sale  of 
their  mortgage-bonds.  This  bank  was  endowed  by  the 
State  with  $2,144,000  of  unconvertible  bonds. 

The  land-credit  banks  of  Norway  are  public  institutions, 
as  shown  by  the  report  of  the  Sub-committee  of  the  U.  S. 
Commission  (S.  Doc.  214,  page  589,  63rd  Congress)  as 
follows : 

"  Two  banlvs  in  Christiania  were  visited,  one  organized 

iHerriek,  pp.   1G6,   167. 


Type  of  Institution  59 

to  assist  the  small  would-be  farmer  to  procure  and  own 
a  home  in  the  country.  Long-  or  short-term  mortgage 
bonds,  as  well  as  short-term  credit,  are  features  here.  The 
bonds  are  virtually  municipal  bonds,  as  they  bear  the 
guaranty  of  the  municipality  in  which  the  bank  promoting 
them  is  located.  For  this  reason  they  find  a  ready  market 
in  London  and  Paris  at  from  Si-'o  to  4  per  cent.  The  other 
bank,  inspired  from  the  same  sources,  is  intended  to  per- 
form a  similar  service  for  the  worthy  man  of  limited  means 
and  still  more  limited  credit  who  resides  in  Christiania  or 
in  suburbs  to  secure  and  own  a  home.  Bonds  for  this 
purpose  are  similarly  issued  and  guaranteed  by  the  city 
of  Christiania,  which  opens  to  them  the  money  markets 
of  Great  Britain  and  Continental  Europe." 

The  Mortgage  Bank  of  the  Kingdom  of  Norway  is  a  pub- 
lic institution.  Its  total  capital  is  27,000,000  kroner,  or 
$7,155,000.  Twenty-one  million  one  hundred  and  ten 
thousand  kroner,  or  $5,591,150,  were  contributed  by  the 
State  and  the  bank  is  under  the  control  of  the  State.  It 
is,  of  course,  a  non-profit-sharing  institution.  (S.  Doc. 
214,  pages  590  to  593,  63rd  Congress.) 

The  Eepublic  of  Chile,  our  South  American  neighbor, 
sixty  years  ago  created  for  her  farmers  a  non-profit-sharing 
land  bank  worthy  of  our  study  and  imitation.  The  Chilean 
State  Land  Mortgage  Bank  (Caja  de  Credito  Hipoteeario) 
has  been  in  operation  nearly  three  quarters  of  a  century. 
It  is  the  one  great  land-credit  institution  of  Chile.  Two- 
thirds  of  all  the  business  done  by  bond-issuing  land  banks 
of  Chile  is  done  by  this  State  land  bank.  The  French 
government  has  in  matters  of  investments  placed  the  bonds 
or  debentures  of  this  institution  upon  equal  footing  with 
government  bonds.  English  bankers  deal  in  the  bonds  of 
the  Chilean  State  Mortgage  Bank.  These  bonds  are  sold 
in  other  European  money  markets.  What  kind  of  a  land- 
credit  institution  is  this  bank  which  stands  preeminently 
above  all  other  land-credit  institutions  on  the  American 


6o  Land  Credits 

continent?  It  is  not  a  privately-owned,  profit-sharing, 
dividend-paying  land  bank. 

The  Agricultural  Bank  of  Egypt  is  a  joint-stock,  divi- 
dend-paying company,  but  should  be  classed  as  a  semi- 
public  institution.  The  National  Bank  of  Egypt,  which 
may  be  regarded  as  a  government  instrumentality,  owns 
two-thirds  of  the  stock  of  the  Agricultural  Bank  of  Egypt. 
Government  tax  collectors  are  at  the  service  of  this  institu- 
tion and  the  government  guarantees  dividends  on  its  stock, 
and  when  necessary  to  enable  it  to  borrow  money  at  reason- 
able interest,  guarantees  the  payment  of  its  debentures. 
The  maximum  rate  of  interest  under  the  law  is  9  per  cent, 
per  annum. 

The  forty-six  Noko  Ginko  Banks  of  Japan  are  semi-pub- 
lic institutions.  They  were  endowed  by  the  Imperial  gov- 
ernment wdth  a  subsidy  of  $4,980,000.  This  amount  was 
distributed  among  the  prefectures,  the  local  governments 
or  administrative  districts,  in  which  each  bank  was  located, 
and  was  used  to  purchase  shares  of  the  capital  stock. 
These  banks  are  in  part  owned  by  the  local  governments.^ 

Australian  State  governments  have  founded  public  land- 
credit  systems.  South  Australia  established  a  State  land- 
credit  bank,  controlled  by  five  trustees  appointed  by  the 
Governor.  The  bank  is  authorized  to  issue  bonds  guar- 
anteed by  the  State. 

Western  Australia  authorized  the  creation  of  a  State 
bank,  the  president  to  be  appointed  by  the  Governor.  The 
bank  is  authorized  to  issue  government  5  per  cent,  bonds, 
to  secure  money  to  loan  to  farmers. 

New  South  Wales  created  a  government  board  composed 
of  three  persons,  through  which  the  Government  issues 
stock  bearing  3i/^  per  cent,  interest.  By  this  method  funds 
are  raised  to  make  loans  to  farmers.  Victoria  authorized 
the  Victoria   Savings   Bank  to   issue  government   bonds 

iHerrick,  p.   192. 


Type  of  Institution  6i 

bearing  4i/^  per  cent,  interest.  The  proceeds  from  the  sale 
of  these  bonds  are  used  to  make  loans  to  landowners. 

The  Agricultural  Bank  of  Queensland  is  a  government 
institution  managed  by  three  trustees  appointed  by  the 
Governor.  Through  appropriations  made  by  the  Legisla- 
ture or  by  the  sale  of  government  bonds,  funds  are  raised 
and  loaned  to  farmers. 

The  joint-stock,  profit-sharing  banks  of  Germany  were 
not  primarily  designed  to  meet  needs  of  agricultural  credit. 
This  is  shown  by  a  statement  of  Eobert  Franz,  on  the  Sta- 
tistical History  of  the  German  Banking  System,  in  the  Re- 
port of  the  National  Monetary  Commission  (S.  Doc.  508, 
61st  Congress,  page  38)  in  which,  referring  to  the  forma- 
tion of  the  joint-stock  mortgage  banks  of  Germany,  he  says : 

"  The  growing  demand  for  dwellings  was  accompanied  by 
a  rapid  rise  in  value  of  city  grounds;  hence  the  necessary 
construction  of  dwellings  required  larger  amounts  of  capi- 
tal than  were  at  the  disposal  of  the  individual  builders. 
It  was  mainly  to  meet  the  needs  of  credit  on  urban  real 
estate  that  mortgage  banks  (HypotheJcenhanlcen)  were  cre- 
ated, and  thus  a  special  organization  of  city  real  estate 
credit  was  formed.  The  greater  number  of  the  mortgage 
banks  now  in  existence  was  founded  during  the  decade 
1862  to  1872 ;  practically  all  the  others  were  founded  dur- 
ing the  building  boom  of  1894-1896." 

Dr.  M.  Augsbin,  referring  to  the  failure  of  the  private 
joint-stock  mortgage  banks  of  Germany  to  serve  success- 
fully as  instruments  of  agricultural  credit  (S.  Doc.  214, 
page  391,  63rd  Congress),  says: 

"  In  Germany  we  now  have  forty  mortgage  banks  which 
have  together  loaned  out  on  mortgages  the  amount  of  10,- 
000,000,000  marks. 

"  But  only  about  6  per  cent,  of  this  large  sum  is  lent 
out  on  rural  property  —  the  great  majority  of  mortgages 
are  given  on  land  in  towns.  The  great  banks,  the  Central 
Land  Credit  Joint-Stock  Company  and  the  Bavarian  Mort- 


62  Land  Credits 

gage  Bank  hold  together  90  per  cent,  of  all  these  mortgages 
on  agricultural  property,  so  that  all  the  other  mortgage 
banks  have  no  great  importance  for  agricultural  purposes." 

If  the  experience,  practice,  and  example  of  other  nations 
are  to  be  followed,  certainly  this  government  will  not  bring 
into  existence  private,  joint-stock,  profit-sharing,  land- 
credit  banks  to  dominate  and  control  our  land-credit  in- 
stitutions. It  is  true  that  Germany  has  thirty-seven 
private,  joint-stock,  mortgage  banks,  which  are  classed  as 
ZantZ-credit  institutions,  but  they  are  not  farm  ZanJ-credit 
institutions,  and  were  not  designed  to  be  such.  This  is 
shown  by  the  foregoing  quotations.  These  banks  follow 
closely  the  business  methods  of  the  non-profit-sharing  in- 
stitutions which  dictate  the  rate  of  interest  and  all  other 
charges  which  constitute  the  cost  of  loans  upon  farm- 
land security.  The  situation  is  far  different  from  what  it 
would  be,  if  all  the  land-credit  institutions  of  a  great 
nation  like  the  United  States  were  built  upon  the  profit- 
sharing  plan,  operated  exclusively  by  private  capital,  with 
gain  as  the  chief  inducement  for  investments  in  their  capi- 
tal stock,  managed,  directed  and  controlled  by  men  who 
are  not  farmers,  and  who  are  not  required  and  could  not 
be  expected  to  have  any  more  interest  in  expanding  our 
agricultural  interests,  or  promoting  the  prosperity  of  the 
farmers,  than  are  the  owners  of  our  commercial  banks, 
or  the  managers  of  the  great  industrial  and  business  cor- 
porations of  the  nation. 

There  are  many  reasons  why  the  farm-credit  instrumen- 
talities created  by  the  national  government  should  not  be 
purely  selfish  institutions,  like  all  ordinary  private  busi- 
ness concerns. 

First.  Purely  private  corporations  do  not  comport  with 
the  object  to  he  attained.  As  a  great  nation  we  have  neg- 
lected our  farmers  in  the  matter  of  credit.  Other  nations 
have  excelled  us  in  providing  credit  for  their  farmers. 
Our  banking  institutions  were  designed  for  all  classes  and 


Type  of  Institution  6'^ 

all  industries.  They  were  to  serve  alike  all  trades,  occu- 
pations, and  avocations.  They  have  not  done  so.  So  much 
has  this  become  the  ease,  that  they  are  now  designated  as 
commercial  banks  —  institutions  to  serve  commerce.  This 
idea  so  permeated  the  public  mind,  and  so  dominated  the 
ideas  of  our  national  legislators  that  when  the  Federal 
government  in  1913  was  enacting  a  new  banking  and  cur- 
rency law,  the  movement  to  include  in  the  same  act  pro- 
visions for  agricultural  credit  was  promptly  suppressed. 
The  word  was  given  out  that  currency,  credit,  banking  fa- 
cilities for  farmers  must  not  interfere  with  the  needs  or 
demands  of  commerce.  Provisions  were  inserted,  giving 
slight  recognition  to  agriculture,  and  national  banks  were 
authorized  —  permitted  —  not  required,  to  make  a  limited 
amount  of  loans  on  farm  mortgages.  It  is  not  necessar}'-, 
neither  would  it  be  just,  to  lay  any  particular  blame  upon 
the  bankers.  It  is  the  system  that  should  be  condemned. 
But  be  that  as  it  may,  our  present  credit  institutions,  com- 
posed of  our  national  and  State  banks  serve  commerce,  not 
agriculture.  As  the  term  is  understood  in  Europe,  we  have 
no  agricultural  credit  institutions.  While  the  farmers  of 
other  nations  have  had  ample  credit  at  a  rate  of  interest 
below  that  accorded  commercial  and  industrial  enterprises, 
our  farmers  have  suffered  gi'eat  financial  loss,  through 
lack  of  credit  and  high  interest.  But  the  dawn  of  a  new 
day  is  at  hand.  Our  eyes  have  been  opened.  The  mis- 
takes of  the  past  are  to  be  rectified.  We  are  to  make 
amends  to  agriculture.  In  our  plans  we  must  not  over- 
look the  fact  that  an  emergency  exists;  that  a  crisis  is  at 
hand.  Having  lost  fully  a  half  of  a  century,  we  can  not 
now  safely  experiment.  It  is  too  late  to  do  things  by 
halves.  The  agricultural  credit  institutions  which  we  shall 
create  must  compare  favorably  with  the  best  models  in  ex- 
istence. At  this  late  day,  to  place  agricultural  credit  in 
the  hands  of  purely  private  banking  institutions,  would  be 
merely    repeating    the    mistakes    of  the    past.     We    have 


64  Land  Credits 

27,000  of  these  institutions,  located  in  every  rural  com- 
munity in  the  United  States.  As  instruments  to  promote 
farm  credit,  they  have  been  weighed  in  the  balance  and 
found  wanting.  The  farmers  have  supplied  them  with  de- 
posits, contributed  freely  to  their  annual  dividends,  and 
augmented  their  surpluses  and  undivided  profits.  Largely 
through  agriculture,  the  great  majority  of  these  banks  owe 
their  existence  and  success.  In  this  emergency,  in  this 
crisis,  shall  Congress  simply  create  more  banks,  like  those 
we  now  have?  Certainly  not.  Our  new  land-credit  insti- 
tutions should  not  be  purely  private  banking  institutions, 
similar  to  existing  commercial  banks.  They  will  have  a 
separate  field  in  which  to  work.  They  will  have  a  distinct 
purpose  to  accomplish,  a  special  object  in  view,  a  peculiar 
work  to  do,  and  a  mission  of  their  own  to  perform. 
They  must  not  be  handicapped  with  a  selfish  purpose 
as  the  main  magnet  to  attract  capital  to  their  support. 
Gain  to  shareholders  should  not  be  the  chief  corner-stone 
upon  which  they  are  founded.  Profit-sharing  should  not 
be  the  underlying  principle  upon  which  we  should  erect  our 
land-credit  system  for  our  6,500,000  farmers.  Such  in- 
stitutions will  not  harmonize  with  the  great  purpose  the 
nation  should  have  in  view  in  establishing  a  new  system  of 
land  credit.  That  purpose  fundamentally  is  altruistic.  It 
is  to  supply  our  greatest  industry  with  that  credit 
which  is  absolutely  necessary  for  its  proper  and  legiti- 
mate expansion.  It  is  to  give  our  farmers  credit  fadilities 
which  will  place  them  upon  an  equal  basis  with  commercial 
interests.  It  is  to  promote,  through  agricultural  develop- 
ment, the  prosperity  of  all.  In  short,  our  new  land-credit 
system  embodies  a  national  policy  which  will  contribute 
abundantly  to  the  greatness  of  our  country,  and  add  im- 
measurably to  the  happiness  of  all  our  people.  The  object 
in  view,  the  purpose  to  be  accomplished,  the  great  end  to 
be  attained,  are  too  intimately  connected  with  the  very 
heart-throbs  of  the  nation,  to  be  entrusted  to  private  bank- 


Type  of  Institution  61; 

ing  institutions  without  public  obligations,  responsibilities, 
or  duties. 

Second.  Public  or  semi-public,  non-profit-mahing ,  land- 
credit  institutions  ivill  insure  cheaper  credit.  This  propo- 
sition is  self-evident.  The  land  banks  are  middlemen. 
They  are  the  go-between  corporations,  erected  by  law,  to 
collect  securities  from  the  farmers  and  distribute  them 
to  investors.  They  constitute  the  administrative  machinery 
to  do  a  special  work.  Whatever  it  costs  to  do  this  work, 
is  legitimate  expense.  Anything  above  this  is  profit.  Men 
with  surplus  capital  usually  invest  it  where  the  greatest 
profits,  coupled  with  reasonable  safety,  are  promised.  This, 
from  a  business  stand-point,  is  legitimate  and  sound.  Men 
who  invest  their  money  in  a  business  venture  expect  good 
returns.  They  not  only  want  interest,  they  look  for  profit. 
If  men  put  $50,000  in  a  commercial  bank,  they  expect  a 
reasonable  interest  on  the  money  invested,  and  in  addition 
thereto  they  demand  profits.  These  profits  may  appear  in 
large  dividends,  or  in  increased  value  of  their  stock,  or  in 
both.  The  national  banks  of  the  United  States  in  1914 
paid  average  dividends  of  11.39  per  cent,  on  their  capital 
stock.  They  also  added  a  comfortable  amount  to  their  sur- 
plus funds.  Both  their  dividends  and  surpluses  repre- 
sented profit.  On  January  1,  1915,  the  surpluses  and  un- 
divided profits  of  our  national  banks  amounted  in  the  ag- 
gregate to  a  sum  equal  to  the  entire  capital  stock  of  these 
banks.  This  meant,  of  course,  that  on  the  average  every 
dollar  which  had  been  invested  in  national  bank  stock  in  the 
United  States  had  doubled  in  value.  The  owners  of  these 
banks  had  been  able  not  only  to  earn  interest  on  the  capital 
invested  but  they  had  also,  in  previous  years,  laid  aside 
sufiicient  earnings  to  double  the  value  of  their  original 
investments.  Now,  these  banks  are  not  run  for  the  ac- 
commodation of  their  depositors,  nor  for  the  profit  of  their 
borrowing  customers.  But  dividends  and  surpluses,  gains 
and  profits  of  the  banking  business,  come  mainly  through 


66  Land  Credits 

resources  furnished  by  depositors  and  interest  paid  by  cus- 
tomers. We  have,  however,  another  class  of  banks  in  this 
country  —  our  mutual  savings  banks.  They  are  located 
largely  in  New  England.  They  have  no  capital  stock. 
They  pay  no  dividends  to  shareholders.  They  have  a 
philanthropic  purpose.  Their  object  is  to  encourage  thrift 
among  wage-earners  and  people  of  small  means,  and  so 
these  banks  are  forces  in  social  betterment  and  in  the  eco- 
nomical development  of  the  State.  The  profits  of  these 
banks  go  to  the  depositors  in  interest  payments  upon  their 
deposits.  In  these  mutual  savings  banks  the  wage-earners 
have  on  deposit  nearly  $4,000,000,000.  As  the  mutual 
savings  banks  are  organized,  operated,  conducted,  and  man- 
aged solely  in  the  interest  of  their  depositors,  so  our  sys- 
tem of  land  banks  should  be  organized  and  operated  en- 
tirely for  the  benefit  of  the  farmers.  The  profits  of  the  in- 
stitution should  in  the  end  go  to  the  borrowers.  Capital 
used  should  be  allowed  a  legitimate  return  in  interest. 
The  actual  administration  charges  should  be  paid  by  the 
borrowers.  But  all  contributions  above  this  should  be 
placed  to  the  credit  of  those  whose  farms  are  mortgaged, 
and  ultimately  returned  to  those  who  have  contributed  them. 
The  bills  which  propose  to  create  profit-sharing  banks 
as  our  instruments  for  land  credit  provide  for  the  creation 
of  reserve  accounts.  This  provision  is  wise,  if  private, 
profit-sharing  land  banlvs  are  to  be  created.  This  reserve 
gives  additional  security  to  bondholders.  But  these  re- 
serves belong  to  the  banks.  They  add  value  to  the  bank 
stock.  Eeserve  funds  are  therefore  profitable  to  share- 
holders. ISTon-profit-sharing  banks  should  create  reserve 
funds,  and  such  reserve  funds  should  be  amply  sufficient  to 
pay  all  possible  losses.  But  in  non-profit-sharing  land 
banks  the  profits  of  reserve  funds  go  to  borrowers,  in  the 
form  of  lower  interest.  Eeserve  funds  are  guaranty  funds. 
They  make  mortgage  bonds  more  secure.  Whatever  adds 
to  the  safety  and  security  of  the  mortgage  bonds  tends  to 


Type  of  Institution  67 

lower  the  rate  of  interest.  In  profit-sharing  institutions 
the  reserve  funds,  contributed  by  payments  of  borrowers, 
add  to  the  value  of  the  investment  of  stockholders.  In 
non-profit-sharing  institutions  the  reserve  funds  of  all 
kinds,  surpluses,  and  undivided  profits,  are  an  asset  of  the 
borrowers,  which  gives  tliem  better  credit,  lower  interest, 
and  additional  prestige  and  standing  with  investors.  Such 
an  institution,  unselfish  in  its  aim,  founded  upon  non- 
profit-sharing principles,  administered  in  tJie  interests  of 
borrowers,  free  from  speculative  tendencies,  will  give  the 
farmers  of  the  United  States  the  most  satisfactory  service, 
the  most  ample  credit,  and  the  lowest  rates  of  interest. 
Third.  The  attitude  of  the  farmers  ivill  be  more  friendly 
and  favorable  toward  public,  semi-puhlic,  non-profit-shar- 
ing, land-credit  institutions  than  toward  purely  private 
banks,  conducted  entirely  upon  the  principle  of  profit  and 
gain.  The  burnt  child  dreads  the  fire.  There  is  a  natural 
inclination  for  the  farmers  to  feel  that  in  the  development 
of  our  industrial,  financial,  and  commercial  systems  they 
have  been  placed  at  a  great  disadvantage.  They  realize 
their  unorganized  condition.  They  have  at  times  revolted 
against  conditions  which  have  prevailed.  They  constitute 
more  than  one-third  of  our  population.  The  proposed  new 
land-credit  system  is  primarily  for  their  benefit.  Next,  its 
purpose  is  to  promote  the  expansion  and  prosperity  of  the 
great  industry  in  which  they  are  engaged.  Finally,  through 
better  credit  for  agriculture,  all  industries  are  to  be  helped, 
and  all  the  non-farming  population  is  to  reap  substantial 
benefits.  But  the  farmers  have  a  direct  and  personal 
interest  in  the  success  of  the  proposed  new  system  of  land 
credit.  The  system  of  land  credit  established  should  meet 
their  reasonable  demands.  Now,  many  of  the  farmers  are 
asking  that  the  national  government  shall  go  so  far  as  to 
make  loans  direct  to  the  farmers  out  of  funds  in  the  na- 
tional treasury.  Some  of  them  are  asking  that  the  Federal 
government  shall  guarantee  the  payment  of  farm-mort- 


68  Land  Credits 

gage  bonds,  seciired  by  farm  mortgages.  This  is  shown  by 
the  action  taken  by  the  National  Grange,  and  the  Farmers' 
Union.  But  in  lieu  of  these  demands,  the  farmers  are 
offered  a  system  of  profit-sharing  private  banks,  controlled 
by  share-holders  with  money-making  as  their  chief  motive. 
Here  are  the  two  extremes.  Will  the  farmers  who  are  de- 
manding direct  loans,  and  Federal  government  guaranty  of 
land  mortgages,  accept  profit-sharing,  private  banks  as  the 
medium  through  which  their  future  credit  must  come? 
Naturally  they  will  not.  The  farmers  would  be  suspicious 
of  such  institutions.  The  farmers  are  willing  to  trust  pub- 
lic land-credit  institutions.  They  would  have  faith  and 
confidence  in  land-credit  institutions,  administered  by  of- 
ficials, ranking  as  public  officers.  They  would  accept  an 
institution  which  would  be  an  impartial,  unselfish  inter- 
mediary between  them  and  investors.  They  will  not  be 
satisfied  with  land-credit  institutions,  which  have  an  in- 
terest of  their  own  paramount  to  the  welfare  of  the  farmers. 
The  attitude  of  the  farmers !  Is  not  that  worth  consider- 
ing? Will  any  system  of  land  credit  be  successful  which 
does  not  meet  with  the  approval  of  the  farmers?  Any 
system  of  land  credit  will  have  more  or  less  difficulties. 
There  will  be  some  dissatisfaction,  some  disappointments, 
some  complaints,  and  some  criticisms.  But  the  national 
government  should  not  force  upon  the  farmers  credit  in- 
stitutions which  in  kind  and  character  are  not  acceptable 
to  the  farmers.  To  do  so,  would  be  to  invite  failure.  To 
make  any  system  of  land  credit  a  success,  the  cooperation 
of  the  farmers  is  needed.  It  is  not  momentary  success  that 
we  should  plan  for.  It  is  not  to  satisfy  the  farmers,  un- 
til another  Presidential  campaign  shall  have  been  passed. 
It  is  not  to  aid  candidates  in  the  next  Congressional  elec- 
tion. It  is  only  permanent  success  that  is  worth  while. 
We  are  building  for  the  distant  future.  Frederick  the 
Great  of  Prussia,  without  a  model  from  which  to  copy, 
founded  the  Landschaften.     One  and  a  half  centuries  have 


Type  of  Institution  69 

rolled  by.  The  Landschaft  still  stands  as  a  splendid  and 
enduring  monument  to  its  founder.  In  all  these  one  hun- 
dred and  fifty  years,  no  profits  of  the  Landschaften  have 
gone  to  make  dividends  for  private  capital.  The  supreme 
object  of  these  institutions  has  been  to  render  unselfish 
service  to  farmers.  This  is  the  secret  of  their  success.  We 
are  at  the  threshold  of  a  great  undertaking.  We  are  about 
to  bring  into  existence  a  new  land-credit  system.  The 
foundation  will  be  insecure,  and  the  whole  structure  will 
be  endangered,  unless  the  system  adopted  meets  with  the 
general  approval  of  the  farmers  of  the  United  States. 


CHAPTER  VI 

ADEQUATE   CREDIT 

OuE  land-credit  system  must  be  such  as  will  insure  ade- 
quate credit  for  agriculture.  Any  system  which  does  not 
supply  the  necessary  amount  of  credit  will  be  a  failure. 
Lack  of  credit  has  been  a  great  handicap  to  agriculture. 
To  cure  this  defect,  is  one  of  the  chief  purposes  of  land- 
credit  legislation. 

One  of  the  serious  objections  to  the  plan  of  land  credit 
provided  in  the  Commission,  the  Sub-committee  and  the 
Senate  Committee  bills,  is  that  under  these  bills  there  is 
no  assurance  that  the  amount  of  credit  provided  will  be  ade- 
quate to  meet  the  demands  of  our  agricultural  interests. 
There  is  no  way  of  knowing  just  how  much  credit  will  be 
needed.  This  must  be,  more  or  less,  a  matter  of  conjecture. 
We  may  make  estimates.  In  this  way,  we  may  ascertain 
approximately  the  amount  of  land  credit  our  new  institu- 
tions will  be  caUed  upon  to  provide.  In  general  terms,  we 
know  about  the  amount  of  existing  farm  mortgages  in  the 
United  States.  The  census  of  1910  does  not  show  the 
amount  of  all  farm  mortgages  existing  at  that  time.  It 
shows  only  mortgages  upon  farms  occupied  by  the  owners. 
Such  mortgages,  as  shown  by  the  census  reports,  amounted 
to  $1,726,172,851.  The  number  of  farms  occupied  by  own- 
ers were  3,948,722,  or  about  two-thirds  of  the  entire  num- 
ber of  farms.  By  assuming  that  the  farms  not  occupied  by 
the  owners,  in  proportion  to  their  number,  carried  the  same 
amount  of  mortgage  indebtedness  as  farms  occupied  by 
owners,  we  may  approximate  the  total  amount  of  mortgages 

70 


Adequate  Credit  Ji 

upon  the  farms  of  the  United  States.  By  this  method  we 
ascertain  that  the  farm-mortgage  indebtedness  of  the  United 
States  in  1910,  amounted  to  about  $2,300,000,000.  The 
Department  of  Agriculture  estimated  that  the  farm-mort- 
gage indebtedness  in  the  United  States  in  1910  was  $2,793,- 
000,000.  It  is  safe  to  say  that  the  farm-mortgage  indebted- 
ness of  the  United  States  now  amounts  to  approximately 
$3,000,000,000.  The  personal  indebtedness  of  various 
kinds,  including  all  debts  of  farmers  not  secured  by  a 
mortgage  on  real  estate,  is  estimated  at  from  two  to  three 
billions  of  dollars.  The  indebtedness  of  our  farmers 
must,  therefore,  range  some  place  between  $5,000,000,000 
and  $6,000,000,000.  If  the  Federal  government  establishes 
a  system  of  land  credit  that  meets  the  needs  and  expecta- 
tions of  our  farmers,  there  naturally  will  be  additional 
demands  for  mortgage  credit.  Under  our  present  facilities 
for  mortgage  credit,  the  average  farmer  uses  the  mortgage 
on  his  farm  only  as  a  last  resort.  Of  course,  much  of  the 
existing  mortgage  indebtedness  comes  from  the  habit  of 
American  farmers  of  enlarging  their  farm  holdings  by  the 
purchase  of  additional  lands  and  going  in  debt  therefor. 
Still,  it  is  true  that  farmers  of  this  country  are  not  in 
the  habit  of  mortgaging  their  land  for  productive  purposes, 
such  as  buj^ng  machinery,  tools,  implements,  stock,  and 
other  things  to  enable  them  to  enlarge  the  production  of 
the  farm.  We  must  assume  that  if  loans  secured  by  farm 
mortgages  can  be  obtained  on  more  satisfactory  conditions, 
easier  terms,  and  at  lower  interest  rates,  that  there  will  be 
additional  demand  for  farm-mortgage  credit.  On  the 
other  hand,  if  under  the  new  system  established,  loans  are 
offered  on  better  terms  and  at  lower  rates  of  interest,  the 
existing  mortgage  indebtedness  will  be  largely  refunded 
under  the  new  system.  "\Miile  some  time  will  be  required 
to  make  these  adjustments,  any  new  system  of  land  credits 
which  greatly  improves  the  terms  and  conditions  upon 
which  farm-mortgage  loans  may  be  secured  and  makes  a 


72  Land  Credits 

material  reduction  in  the  prevailing  interest  rates,  will  be 
called  upon  to  take  up  a  very  large  part  of  existing  farm- 
mortgage  indebtedness  and  supply  large  additional  de- 
mands for  loans,  some  of  which  will  be  used  to  pay  off  ex- 
isting personal  indebtedness  and  other  amounts  will  be 
used  to  meet  new  loans,  made  to  enable  farmers  to  increase 
the  productiveness  of  their  farms.  All  of  this  can  not  be 
accomplished  in  a  day,  or  in  a  year,  but  nevertheless  the 
pressure  upon  our  new  land-credit  system  —  whatever  may 
be  its  character  —  will  be  great  indeed.  Any  plan,  sys- 
tem, or  program  of  land  credit,  which  is  not  so  conceived, 
devised,  and  constructed  as  to  meet  large  demands  for 
credit,  will  be  unsatisfactory  and  is  doomed  to  failure. 

There  will  be  another  demand  for  farm  loans  that  must 
not  be  overlooked.  We  had  in  this  country  in  1910, 
2,354,676  farm  tenants.  We  have  in  our  towns  and  cities 
millions  of  men  who  would  in  time  acquire  farm  homes 
if  suitable  provisions  were  made  by  which,  through  long- 
time loans  at  a  low  rate  of  interest,  they  could  purchase 
such  homes.  Practically  all  European  countries,  in  estab- 
lishing land-credit  systems,  have  made  provision  for  such 
cases.  Our  new  land-credit  system  should  be  such  as  will 
meet  the  needs  of  tenants  and  others  who  desire  to  ac- 
quire farm  homesteads.  There  will  be  large  additional 
demands  for  farm  loans  from  such  classes.  From  this  re- 
view, it  is  plain  that  the  demands  for  loans  will  be  enor- 
mous. Any  plan  or  system  of  land  credit  which  is  not  ca- 
pable of  almost  indefinite  expansion  will  not  afford  ade- 
quate credit  for  agriculture.  Any  system  which  does  not 
afford  credit  of  sufficient  volume  to  meet  the  legitimate  de- 
mands therefor  will  be  a  failure.  The  Commission  Bill 
authorizes  the  organization  of  any  number  of  national  farm 
land  banks.  There  may  be  one  organized  in  each  State; 
there  may  be  none.  Their  organization  is  wholly  a  volun- 
tary matter.  There  is  no  compulsion  on  any  one.  There 
is  indeed  no  provision  in  the  bill  which  requires,  or  in- 


Adequate  Credit  73 

sures,  that  a  single  bank  would  be  organized  under  this 
law.  It  is  all  a  matter  of  conjecture  and  opinion,  doubt 
and  uncertainty.  The  advocates  of  the  bill  assume  that  its 
provisions  are  such  that  capital  will  be  attracted  to  these 
banks,  and  that  a  sufficient  number  of  banks  will  be  or- 
ganized, with  such  capital  stock  as  will  enable  them  to  sup- 
ply the  demand  for  farm  credit.  Is  it  wise  to  build  upon 
opinion,  conjecture,  and  belief?  But  whatever  might  be 
the  number  of  banks  organized  under  this  proposed  law, 
the  banks  are  to  be  limited  in  the  amount  of  their  loans. 
The  amount  of  bonds  issued  by  any  bank  must  not  be 
more  than  fifteen  times  the  capital  stock  of  the  bank.  The 
capital  of  the  bank  serves  only  as  a  working  fund.  The 
funds  upon  which  loans  are  made  are  secured  mainly 
through  the  sale  of  bonds.  But  as  it  is  wholly  indefinite 
and  uncertain  as  to  the  number  of  banks  that  would  be  or- 
ganized under  the  provisions  of  this  bill,  and  as  to  the  ag- 
gregate amount  of  capital  stock  these  banks  would  have, 
necessarily  there  would  be  no  way  of  telling  in  advance  the 
amount  of  credit  which  such  banks  could  extend. 

The  Sub-committee  Bill  and  the  Senate  Committee  Bill 
are  not  quite  so  bad.  Under  these  bills,  there  are  provi- 
sions which  assure  that  the  bond-issuing  banks  would  have 
at  least  a  minimum  amount  of  capital.  Both  of  these 
bills  provide  for  the  organization  of  twelve  regional  or 
district,  bond-issuing,  land  banks,  each  with  a  capital  stock 
of  at  least  $500,000.  Should  private  capital  not  be  forth- 
coming in  sufficient  amount,  the  Secretary  of  the  Treasury 
is  authorized  to  subscribe  the  balance.  Then  under  the 
provisions  of  these  two  bills,  there  would  be  twelve  district 
banks,  each  with  a  capital  stock  of  at  least  $500,000.  This 
would  assure  that  the  twelve  bond-issuing  banks  would 
have  an  aggregate  capital  stock  of  at  least  $6,000,000. 
Under  the  provisions  of  these  bills  the  bonds  issued  by 
these  banks  must  not  exceed  twenty  times  the  amount  of 
the  capital  stock.     These  banks  could  issue  a  total  of  land- 


74  Land  Credits 

mortgage  bonds  to  the  amount  of  $120,000,000.  The 
total  amount  of  loans  assured  under  the  provisions  of  the 
Sub-committee  Bill  or  the  Senate  Committee  Bill,  would 
be  $120,000,000,  Any  amount  of  loans  above  this  would 
be  wholly  doubtful  and  uncertain.  Obviously  it  could  not 
be  foretold  what  amount  of  capital  would  be  invested  in  the 
stock  of  these  banks  above  the  minimum  required  by  law. 
The  question  is,  should  Congress  adopt  any  system  of  land 
credit  which  assures  only  $120,000,000  farm-mortgage 
credit  ?  This  is  only  4  per  cent,  of  the  $3,000,000,000  of 
existing  farm  mortgages  in  the  United  States.  This  leaves 
96  per  cent,  of  existing  farm  mortgages  unprovided  for. 
To  refund  existing  farm  mortgages,  under  the  system  pro- 
posed, the  land  banks  should  have  an  aggregate  capital  of 
$150,000,000.  Only  $6,000,000  is  assured  under  the  pro- 
visions of  the  Sub-committee  Bill  or  under  the  Senate  Com- 
mittee Bill.  Only  one  twenty-fifth  of  the  necessary  capi- 
tal is  assured.  It  is  true  that  it  should  not  be  assumed 
that  the  entire  amount  of  the  $3,000,000,000  of  existing 
farm  mortgages  would  be  refunded  by  the  banks  under  the 
new  system.  Doubtless  existing  farm  banks,  insurance  and 
loan  companies  and  individuals  holding  farm  mortgages 
would  meet  the  reasonable  demands  of  their  customers, 
and  continue  to  carry  for  an  indefinite  time  much  of  the 
existing  mortgage  indebtedness.  However,  to  balance 
against  this  would  be  the  very  large  demands  for  additional 
credit  (1)  from  ambitious  farmers  who  will  desire  to  make 
large  new  loans  with  a  view  to  increasing  the  production 
and  profits  of  their  farms,  and  (2)  demands  for  loans  from 
tenants  and  others  who  will  desire  to  acquire  farm  home- 
steads. To  start  out  with  a  land-credit  system  that  may 
be  able  to  supply  only  4  per  cent,  of  the  demands  for  farm 
loans  would  seem  to  be  the  height  of  folly.  The  provisions 
in  these  bills  which  seek  to  limit  the  dividends  of  the  pro- 
posed land  banks  to  6  per  cent,  annually,  though  intended 
to  protect  borrowers  from  excessive  profits,  will  necessarily 


Adequate  Credit  75 

deter  capital  from  investment  in  the  stock  of  these  proposed 
land  banks.  Investments  in  the  stock  of  these  banks  will 
be  wholly  a  voluntary  matter.  While  safety  is  one  element 
which  influences  capital  in  choosing  investments,  the 
amount  of  income  is  also  a  determining  factor.  Where 
two  forms  of  investments  are  offered,  with  reasonable 
safety  assured  in  both,  capital  will  go  where  the  larger 
dividends  are  offered.  Long  experience  has  shown  that 
money  invested  in  the  share  capital  of  our  national  and 
State  banks  is  reasonably  safe.  The  average  dividend  paid 
by  our  national  banks  in  1914  was  11.39  per  cent.  By 
what  course  of  reasoning  can  it  be  claimed  that  within  a 
reasonable  time,  $150,000,000,  or  any  large  sum  of  money, 
will  be  invested  in  land  banks,  limited  to  a  6  per  cent,  divi- 
dends, when  national  bank  stock  is  paying  dividends  of  12 
per  cent,  per  annum?  The  limitation  of  profits  in  purely 
private  land  banks  may  be  just  and  wise.  But  such  limi- 
tation is  unfavorable  to  the  development  and  extension  of 
the  system.  Men  with  capital  want  a  free  hand  in  their 
business.  This  is  according  to  commercial  ideas  every- 
where. It  is  a  principle  which  has  contributed  much  to  the 
material  progi'ess  of  this  and  all  other  countries.  It  is 
fundamental  in  the  economical  policies  of  the  world.  It  is 
true  that  the  Federal  Eeserve  Act  limited  dividends  of  the 
twelve  Federal  reserve  banks.  But  the  national  banks 
were  only  required  to  invest  in  the  stock  of  the  Federal 
reserve  banks  6  per  cent,  of  tlicir  capital  and  surpluses. 
If,  however,  it  had  been  proposed  to  limit  the  dividends 
of  all  national  banks  to  6  per  cent,  per  annum,  and  to  have 
required  all  excess  of  earnings  above  this  amount  to  have 
been  paid  into  the  treasury  of  the  national  government,  the 
holders  of  national  banks  stock  would  have  regarded  the 
proposal  as  revolutionary  and  confiscatory.  And  it  would 
have  been.  More  than  this,  the  creation  of  private  bank- 
ing institutions,  as  the  instruments  of  our  land-credit  sys- 
tem, and  then  placing  a  limit  upon  the  amount  of  the  divi- 


76  Land  Credits 

dends  that  may  be  declai-ed,  is  not  supported  by  the  prac- 
tice in  European  countries.  The  Credit  Foncier  of  France 
is  a  proiit-sharing  institution.  There  is  no  limit  phiced 
upon  the  amount  of  the  dividends  it  may  declare.  Certain 
obligatory  reserves  are  required.  But  when  these  reserves 
have  been  provided  for,  the  dii-ectors  may  use  the  balance 
of  the  profits  in  paying  dividends  —  without  restriction  or 
limit.^  The  same  is  true  of  the  joint-stock  mortgage  banks 
of  Germany.  The  Prussian  Central  Land  Mortgage  Com- 
pan}^  one  of  the  great  mortgage  companies  of  the  world,  is 
a  private,  profit-sharing  mortgage  company.  The  divi- 
dends of  this  company  are  not  limited  by  law.  The  com- 
pany has  built  up  a  reserve  equal  to  -il  per  cent,  of  its  capi- 
tal, but  for  over  forty  years  of  its  existence  has  paid  an- 
nual dividends  averaging  S.T5  per  cent.^ 

Now,  the  difficulty  arises  from  the  attempt  to  create 
profit-sharing,  private  banlvs  as  the  instruments  of  our 
land-credit  system,  and  applying  to  them  principles  appli- 
cable to  non-profit-sharing  institutions.  If  you  limit  the 
profit  of  these  banks  you  discourage  capital  in  investing 
therein.  The  banks  can  not  provide  adequate  credit,  with- 
out very  large  capital.  Large  capital  will  not  be  forthcom- 
ing unless  large  profits  are  possible.  Hence,  the  system 
falls  from  its  own  weight.  "With  non-profit-sharing  insti- 
tutions this  diflicultv  does  not  arise.  These  institutions,  as 
a  rule,  have  no  capital  stock.  Hence,  the  amount  of  bonds 
they  may  issue  is  unlimited.  Consequently  the  credit  they 
may  extend  is  without  limit.  There  is  no  controvers}'  over 
profits,  because  they  have  none  to  distribute.  The  profits 
go  to  the  reserve  funds,  and  finally  in  rebates  in  principal 
and  interest  to  the  borrowers. 

If  joint-stock  banks  shall  be  created  as  the  instrtiments 
to  operate  our  land-credit  system,  and  the  amount  of  bonds 

1  Herrick,  p.   117. 

2Herrick,  p.  110,  Cahill's  Report,  Senate  Doc.  17,  63rd  Con- 
gress, p.  72. 


Adequate   Credit  77 

to  be  issued  by  each  bank  shall  be  limited  to  some  propor- 
tion of  the  amount  of  its  capital  stock,  say  from  fifteen  to 
twenty  times  the  capital  stock,  then  the  only  way  to  insure 
adequate  credit  is  to  create  institutions  with  large  capital 
stock. 

Simply  to  authorize  the  formation  of  private  banks,  with 
a  provision  limiting  dividends  to  6  per  cent,  per  annum, 
gives  no  assurance  as  to  the  amount  of  capital  that  will  be 
invested  in  these  banks. 

The  inherent  weakness  of  the  plans  proposed  in  the  Sub- 
committee, the  Senate  Committee  and  the  Commission 
bills  is  forcibly  apparent  in  the  smallness  of  capital  re- 
quired or  assured.  Under  the  first  two,  the  total  capital 
assured  for  the  twelve  district  banks  is  $6,000,000.  Un- 
der the  Commission  Bill  banks  may  be  organized  with 
$100,000  capital.  The  number  that  would  be  organized  is 
left  in  doubt  and  uncertainty.  The  amount  of  loans  that 
can  be  made  under  the  provisions  of  these  bills  will  be  con- 
trolled by  the  amount  of  capital  of  the  banks. 

Twelve  banks  with  a  combined  capital  of  $6,000,000  to 
meet  the  demands  for  farm-mortgage  credit  of  6,500,000 
farmers !  This  seems  like  trifling  with  the  farmers. 
There  is  France,  with  40,000,000  people.  We  have,  in 
round  numbers,  100,000,000.  Our  national  wealth  is  more 
than  double  that  of  France.  The  Credit  Foncier,  France's 
chief  land-credit  institution,  has  a  capital  stock  of 
$45,000,000.  Yet,  it  is  seriously  proposed  to  found  a  great 
land-credit  system,  for  the  United  States,  the  chief  agri- 
cultural country  of  the  world,  upon  twelve  regional  or  dis- 
trict banks,  with  a  combined  capital  of  only  $6,000,000 ! 
Are  the  farmers  of  the  United  States  to  be  blamed  if  they 
turn  away  from  such  a  proposition  in  disgust.  Eecently  we 
passed  the  Federal  Eeserve  Act.  Twelve  regional  or  dis- 
trict banks  were  created.  They  are  called  Federal  reserve 
banks.  Admittedly  their  chief  purpose  is  to  serve  com- 
merce.    The  farmers,  of  course,  are  interested  in  a  sound 


jS  Land  Credits 

bankiiiff  and  currency  svstem.  Thev  are  interested  in  the 
growth  of  commerce  and  in  the  expansion  of  industrial 
enterprises.  Indirectly,  the  farmers  are  benefited  thereby. 
The  Federal  Eeserye  Act  required  that  each  of  these  banks 
should  haye  a  minimum  capital  of  $4,000,000,  or  a  total 
capital  of  -$48,000,000.  To  secure  this  capital,  each  na- 
tional bank  was  asked  to  subscribe  6  per  cent,  of  its  capital 
and  surplus.  But  the  act  declared  that  if  the  banks  did 
not  subscribe  this  $43,000,000  of  capital,  the  Secretary  of 
the  Treasury  should  subscribe  the  balance  in  the  name  of 
the  United  States.  The  capital  for  these  twelye  Federal 
reserye  banks  was  in  due  time  forthcominff.  Consress,  bv 
its  action,  said  to  the  farmers,  when  the  Federal  Eeserye 
Act  was  under  consideration,  "  Wait !  It  will  be  your  turn 
next.  Eural  credit  legislation  will  follow."  The  national 
banks  were  required,  under  penalty  of  losing  their  charters, 
to  put  up  $48,000,000  to  proyide  capital  for  the  Federal 
reserye  banks.  But  no  national  bank  is  asked  to  contribute 
a  penny  to  provide  capital  sufficient  to  insure  adequate 
credit  for  agriculture,  the  one  industry  upon  which  all 
others  largely  depend  for  their  very  existence.  If  a  sys- 
tem of  joint-stock  banks  shall  be  adopted,  to  operate  our 
land-credit  system,  the  combined  capital  stock  of  the  bond- 
issuing  institutions  should  be  not  less  than  $60,000,000. 
If  twelye  district  banks  shall  be  created  to  issue  farm  mort- 
gage bonds,  each  of  these  banks  should  be  required  to  haye 
at  least  $5,000,000  in  capital.  And  it  is  the  duty  of  Con- 
gress to  proyide  a  way  by  which  this  amount  of  capital  will 
be  forthcoming.  The  amount  of  mortgage  bonds  to  be  is- 
sued by  a  land-credit  bank  should  not  be  controlled  by  the 
amount  of  its  capital.  It  is,  of  course,  necessary  that  the 
amoimt  of  bonds  issued  should  not  exceed  the  amount  of 
mortgages  held  as  collateral  security  for  the  bonds.  "With- 
out  exception,  all  bond-issuing,  land-credit  institutions  of 
Europe  are  prohibited  from  issuing  bonds  in  excess  of  the 
mortgages  deposited  for  their  security.     This  is  fundamen- 


Adequate  Credit  79 

tal.  It  is  true  that  in  the  European  S3'stems  private  joint- 
stock  banks  are  not  permitted  to  issue  bonds,  except  in  a 
certain  ratio  to  their  capital.  But  the  main  object  of  this 
is  not  to  secure  the  pa3Tnent  of  their  bonds.  Practically 
all  of  these  banks  receive  deposits  and  do  a  general  banking 
business.  One  object  is  to  keep  their  bond  liabilities  down 
to  within  certain  limits  so  as  not  to  endanger  the  interests 
of  the  depositors.  But,  however  this  may  be,  land-credit 
banks,  not  allowed  to  receive  deposits  and  not  engaged  in 
the  general  banking  business,  should  not  take  the  capital  as 
the  basis  to  control  the  amount  of  the  bonds  it  may  issue. 
This  is  supported,  1.  By  sound  reasoning  and  2.  By  ac- 
tual practice,  and  experience. 

The  mortgages  are  of  course  the  basic  security  for  the 
mortgage  bonds  issued  thereon.  Under  any  properly  regu- 
lated system  of  land  credit,  the  mortgage  will  only  repre- 
sent about  50  per  cent,  of  the  value  of  the  land  covered 
thereby.  Some  institutions  do  loan  up  to  two-thirds  the 
value  of  the  land.  The  general  rule  is  to  limit  the  loan  to 
one-half  the  value  of  the  land.  Every  precaution  is  taken 
to  have  an  honest,  intelligent  and  fair  appraisement  made 
of  the  land.  Ordinarily  there  is  little  opportunity  for  ex- 
cessive appraisements.  The  mortgages  are,  therefore,  am- 
ple security  for  the  bonds.  But  mistakes  may  occur. 
There  is  always  a  possibility  of  fraud.  Occasionally  there 
may  be  a  bad  title.  Lands  may  deteriorate  in  value.  Un- 
favorable seasons  and  numerous  unforeseen  tilings  may  arise 
to  destroy  the  value  of  a  mortgage  or  defer  the  paj-ment 
of  the  principal  or  interest.  To  meet  cases  like  these,  a 
fund  must  be  provided  in  advance.  But  the  capital  of  a 
bank  is  not  the  proper  fund  with  which  to  meet  such  de- 
faults. To  meet  such  losses  as  these,  every  safe  and  sound 
land-credit  institution  should  accumulate  a  reserve  fund,  a 
guaranty  or  insurance  fund.  This  reserve  fund  should  be 
set  aside  from  the  annual  payments  or  annuities  paid  by 
mortgagors,  and  should  bear  a  certain  ratio  to  the  amount 
of  outstanding  bonded  indebtedness  of  the  institution. 


8o  Land  Credits 

The  Landschaften  of  Germany  do  not  have  any  capital 
stock.  They  make  loans  and  issue  bonds  indefinitely.  The 
only  restriction  is  that  debentures  must  not  exceed  the 
amount  of  mortgages.  Tlie  system  is,  therefore,  capable  of 
extending  unlimited  credit.  The  provincial  mortgage  in- 
stitutions of  Austria  work  on  the  same  principle.  They 
have  no  capital  stock  or  shareholders.  Loans  may  be  made, 
and  bonds  issued  thereon  indefinitely,  except  bonds  must 
not  exceed  the  total  amount  of  mortgages.  The  system 
automatically  supplies  the  demand  for  credit.  It  is  ca- 
pable of  expansion  to  meet  the  requirements  of  farmers  for 
credit.  Under  this  system  a  bank  need  not  increase  its 
capital  stock  to  meet  the  demand  for  loans.  Loans  may 
be  made  so  long  as  farm-mortgage  bonds  can  be  sold.  The 
bank's  capital  revolves  indefinitely.  This  is  safe,  because 
all  such  institutions  constantly  accumulate  a  fund  especially 
set  apart  to  meet  losses.  This  fund  must  be  equal  to  a  cer- 
tain per  cent,  of  the  outstanding  bonds.  This,  however, 
automatically  adjusts  itself.  The  fund  comes  from  contri- 
butions from  borrowers.  It  necessarily  bears  a  constant 
ratio  to  the  amount  of  mortgages,  and  also  to  the  amount 
of  outstanding  bonds.  The  mortgages  and  bonds  are  equal. 
The  reserve,  guaranty,  or  insurance  fund  is  derived  from 
annual  or  semi-annual  payments  made  by  each  borrower. 
These  payments  equal  a  certain  per  cent,  of  each  mortgage. 
The  total  reserve  grows  as  the  mortgages  grow.  The 
mortgages  must  not  be  less  than  the  outstanding  bonds. 
The  system  is  self-regulating.  It  is  capable  of  almost  in- 
definite expansion.  Now,  the  capital  of  a  bank  is  gener- 
ally stationary.  Its  growth  may  be  limited  by  statute.  Its 
increase  may  depend  entirely  upon  the  pleasure  of  the  di- 
rectors or  shareholders.  They  may  be  controlled  entirely 
by  the  selfish  interests  of  the  shareholders.  Any  system 
of  land  credit  which  limits  the  amount  of  loans  to  a  cer- 
tain percentage  of  the  capital  of  the  institutions,  is  not 
capable  of  supplying  credit  according  to  the  demand  there- 


Adequate  Credit  8i 

for.  Its  credit  power  lacks  elasticity.  In  times  of  stress, 
when  more  credit  is  needed,  the  tendency  will  be  to  restrict 
credit.  One  of  the  main  oljjects  in  founding  the  new 
Federal  Eeserve  System  of  Banking  and  Currency  was  to 
give  our  credit  system  elasticity.  Elasticity  is  also  needed 
in  our  land-credit  system.  Why  establish  a  new  system 
of  credit  for  commerce  —  especially  designed  to  expand  at 
all  times  sufficiently  to  meet  the  demand  for  credit  and 
currency  —  and  give  to  agriculture"  a  land-credit  system 
incapable  of  automatically  expanding  to  meet  the  natural 
and  legitimate  demands  for  credit?  This  point  can  hardly 
be  made  too  emphatic.  Adequate  credit  is  essential.  The 
point  to  get  clearly  in  our  minds  is,  that  we  must  choose 
between  joint-stock  companies  and  land-credit  banks  or  in- 
stitutions without  capital  stock.  Both  may  be  authorized 
to  issue  bonds  or  debentures  to  secure  funds  to  loan ;  neither 
will  be  allowed  to  issue  bonds  in  excess  of  the  mortgages 
held  as  collateral  security  therefor.  But  the  amount  of 
bonds  which  one  class  of  institutions  may  issue  (and  hence 
the  amount  of  their  loans)  is  limited  to  from  ten  to  twenty 
times  the  capital  stock  of  the  institutions  issuing  the  bonds. 
The  other  class  has  no  capital  stock.  Banks  of  this  class 
may  issue  bonds  indefinitely,  restricted  only  by  the  amount 
of  the  loans  or  mortgages.  To  provide  against  loss  banks 
of  this  class  accumulate  reserve  or  guaranty  funds  which 
must  be  equal  to  a  certain  percentage  of  the  outstanding 
bonds.  The  percentage  required  varies  in  different  insti- 
tutions from  5  to  10  per  cent,  of  the  outstanding  bonds. 
The  creation  of  this  reserve  is  obligatory.  The  capital 
stock  of  a  bank  seldom  changes.  It  remains  stationary. 
The  reserve,  guaranty,  or  insurance  fund  grows  as  the 
amount  of  business  enlarges.  From  year  to  year  every  bor- 
rower contributes  a  very  small  percentage  thereto.  It  is 
automatic  in  its  workings.  One  system  is  arbitrary,  rigid, 
unelastistic,  non-expansive.  The  other  is  elastic,  and  auto- 
matically expands  or  contracts  to  meet  the  demands  for 


82  Land  Credits 

credit.  It  may  be  admitted  that  both  of  these  systems  are 
safe.  The  institutions  without  capital  stock,  that  make 
loans,  take  mortgages,  and  issue  bonds  indefinitely  thereon, 
and  that  rely  upon  special  guaranty  funds  to  meet  losses, 
have  a  record  which  precludes  all  doubt  about  their  safety. 
The  long,  unbroken  record  made  by  the  Landschaften  is  in 
itself  sufficient  proof  of  this  statement.  The  success  of  the 
land-credit  institutions  of  Germany,  Austria,  Chile,  and 
other  countries  furnishes  additional  proof  of  the  soundness 
and  safety  of  land-credit  institutions,  without  capital  stock, 
but  with  adequate  reserve  funds,  which  make  loans  and  is- 
sue bonds  thereon  with  no  limitation  except  that  the  out- 
standing bonds  must  not  exceed  the  mortgages  held  as  col- 
lateral security  therefor. 

In  the  preceding  discussion  it  has  been  assumed  that 
bonds  may  be  sold  in  unlimited  quantities.  Evidently 
this  may  not  be  the  case.  There  are  many  things  which 
may  affect  the  sale  of  bonds  or  debentures  issued  by  land- 
credit  institutions.  The  sale  of  land  securities  may  be  af- 
fected (a)  by  the  general  financial  conditions  of  the  coun- 
try, (b)  by  the  character  of  the  institution,  (c)  by  the  lo- 
cation of  the  institution  relative  to  the  centers  or  sources  of 
credit,  (d)  by  the  amount  and  character  of  other  securities 
on  the  markets,  selling  in  competition  with  land  securities, 
and  (e)  of  course,  by  the  general  reputation  of  the  insti- 
tution issuing  the  bonds. 

(a)  General  Financial  Conditions.  General  financial 
conditions  will  of  course  affect  the  sale  of  farm-mortgage 
bonds.  But  general  financial  conditions  can  not  be  con- 
trolled by  any  peculiar  or  special  system  of  land  credit. 
Whatever  system  may  be  adopted,  the  amount  of  credit 
which  it  may  extend  will  be  subject  more  or  less  to  the 
conditions  of  the  money  market.  Our  new  land-credit  sys- 
tem must  contend  with  all  adverse  conditions  in  general 
business.  When  the  country  generally  is  prosperous,  when 
our  industrial  enterprises  are  running  on  full  time,  when 


Adequate  Credit  83 

wage-earners  are  employed  at  good  wages,  when  capital  is 
active,  commerce  is  prosperous,  and  business  is  good,  when 
confidence,  good-cheer  and  optimism  dominate,  farm-mort- 
gage bonds,  like  other  securities,  will  sell  readily  and  in 
almost  unlimited  quantities.  Judging  from  the  past,  we 
should  expect  seasons  of  stress,  depression,  hard  times,  and 
possibly  war.  Under  such  conditions,  the  sale  of  farm- 
mortgage  bonds  will  be  limited,  restricted  and  curtailed. 
The  lesson  is  this:  the  land-credit  institutions  should  be 
planned  and  constructed  so  as  to  meet  adversity  with  the 
greatest  assurance  of  safety.  One  of  the  highest  compli- 
ments to  the  Landschaften  is  that  in  times  of  war — they 
stood  the  test.  Their  bonds  sold  at  less  discount  than  the 
bonds  of  the  Imperial  government  of  Prussia.  So  our 
land-credit  institutions  should  rest  upon  a  foundation  so 
safe  and  secure  that  they  will  be  able  to  tide  over  safely 
every  kind  and  character  of  stress  and  adversity. 

(b)  The  Character  of  the  Institution.  The  character 
of  the  land-credit  institution  will  affect  the  amount  of 
credit  it  will  be  able  to  extend.  Ordinarily,  other  things 
being  equal,  a  public  or  semi-public,  land-credit  institution 
will  command  greater  credit  than  a  purely  private  concern. 
The  public  or  semi-public  institution  has  a  prestige  not 
possessed  by  a  private  institution.  The  people  have  confi- 
dence in  their  government.  The  public  or  semi-public  in- 
stitution shares  in  this  confidence.  A  private  institution 
may  gain  the  confidence  of  the  public.  Ordinarily  this  re- 
quires long  years  of  successful  business.  It  is  largely  a 
matter  of  growth.  If  the  institution  is  small  its  business 
is  restricted,  and  its  reputation  is  confined  closely  to  an 
area  around  its  place  of  business,  or  within  limited  circles 
away  from  home.  The  private  institution  is  thus  handi- 
capped in  competition  for  credit  with  public  or  semi-public 
institutions. 

The  great  majority  of  the  land-credit  institutions  of 
other  countries,  which  have  been  successful,  are  public  or 


84  Land  Credits 

semi-public  institutions.  Indeed,  there  is  not  a  single 
country  in  the  world  that  has  established  a  satisfactory 
land-credit  system  through  private  institutions  only.  It  is 
not  contended  that  private,  land-credit  institutions  can 
not  be  successful  in  business.  The  contention  is  that  the 
public  or  semi-public  institution  ordinarily  will  command 
credit  more  readily  than  purely  private  institutions.  With 
a  view  therefore  to  assuring  ample  credit  for  the  farmers 
of  the  United  States,  public  or  semi-public  institutions 
promise  the  best  results.  To  rely  entirely  upon  private 
banking  institutions  to  supply  adequate  credit  for  the 
farmers  of  the  United  States,  is  simply  taking  a  leap  in  the 
dark. 

(c)  Location  of  Bond-issuing  Banlcs.  The  location  of 
bond-issuing  banks  with  reference  to  the  sources  of  credit 
will  be  a  factor  in  the  amount  of  credit  they  may  extend  to 
agriculture.  It  is  well  known  that  there  is  a  great  variety 
of  interest  rates  throughout  the  United  States.  Some  sec- 
tions of  the  country  have  a  surplus  of  capital.  In  the  older 
States  capital  is  more  abundant  than  in  the  newer  regions. 
Now,  one  of  the  objects  of  organizing  land  credit  is  to 
mobilize  this  surplus  capital.  Evidently  the  land-credit 
bank  located  in  the  very  midst  of  this  surplus  capital  will 
sell  its  bonds  more  readily  than  a  bank  far  remote.  This 
is  especially  true  if  a  large  number  of  small  private  land 
banks  are  brought  into  existence  and  authorized  to  issue 
mortgage  bonds.  A  bank  with  a  small  capital  stock  located 
remotely  from  the  financial  centers  will  have  great  difficulty 
in  disposing  of  its  securities.  In  planning  our  land-credit 
system,  care  should  be  exercised  that  the  location  of  bond- 
issuing  banks  should  be  near  the  source  of  supply  of  credit. 
This,  of  course,  involves  the  question  of  the  number  of 
banks  which  shall  be  authorized  to  issue  mortgage  bonds. 
This  is  a  vital  question  and  will  be  fully  discussed  else- 
where. 

(d)  Competition  with  Other  Securities.     The  mortgage 


Adequate  Credit  85 

bonds  issued  by  our  land-credit  institutions  must  be  sold 
in  competition  with  other  securities.  The  market  is  gen- 
erally flooded  with  securities  of  all  kinds.  Our  corpora- 
tions have  issued  immense  quantities  of  stocks  and  bonds. 
The  total  issue  exceeds  $100,000,000,000.  There  is  a  limit 
to  the  amount  of  capital  free  for  investment  in  these  securi- 
ties. Investors  are  familiar  with  the  securities  hitherto 
placed  upon  the  market.  If  a  new  land-credit  system  shall 
be  established,  a  new  form  of  bonds  will  go  upon  the  mar- 
ket. These  new  securities  will  find  investors  already  sup- 
plied. They  will  find  the  bond  market  occupied.  The  suc- 
cess of  any  system  of  land  credit  which  may  be  established 
will  depend  upon  the  ability  of  the  mortgage  bond  to  find 
favor  among  investors.  How  important  that  the  mortgage 
bond  issued  by  our  land-credit  institutions  shall  at  first  go 
upon  the  market  under  the  most  favorable  auspices.  The 
success  of  any  land-credit  system  depends  upon  the  sale  of 
the  bond.  No  land-credit  institution  can  operate  unless  its 
securities  can  be  disposed  of.  It  all  hinges  on  this  point. 
The  mortgage  bonds  —  the  farmers'  securities  —  must  com- 
pete in  the  money  markets  of  the  world.  Every  possible 
safeguard  must  be  thrown  around  them.  Care  must  be 
exercised  all  along  the  line.  The  application  for  loans 
must  be  in  proper  form,  appraisements  must  be  conserva- 
tive, reliable,  and  trustworthy,  reserves  must  be  ample  to 
meet  all  possible  losses,  provision  must  be  made  to  guard 
against  fraud,  misrepresentation,  and  rascality,  the  mort- 
gage bonds  must  be  issued  only  by  institutions  that  will  add 
to  and  not  detract  from  the  safety  of  the  bonds  issued  upon 
the  mortgages  of  the  farmers.  In  brief,  the  farmers' 
securities  must  go  to  investors,  in  such  form  and  through 
such  institutions  as  will  enable  them  to  meet  successfully 
all  competition,  and  command  credit  adequate  to  meet  all 
the  needs  of  agriculture. 

(e)  Reputation  of  Institution.     In  the  foregoing  the  im- 
portance of  the  reputation  of  the  institution  issuing  mort- 


86  Land  Credits 

gage  bonds  has  been  shown.  Corporations  like  individuals 
have  reputations.  A  private  banking  institution  can  not 
successfully  dispose  of  land  securities  in  large  quantities 
unless  it  is  both  favorably  and  widely  known.  Here  again 
will  be  seen  the  grave  danger  in  placing  our  land-credit 
system  in  the  control  of  private  banking  institutions.  The 
private  institution  must  first  establish  a  reputation.  The 
public  or  semi-public  institution  enters  upon  business  with 
the  reputation  of  the  State  or  Government  behind  it.  This 
is  an  invaluable  asset.  The  farmers  furnish  absolute  se- 
curity. They  pledge  two  dollars  for  every  dollar  they  bor- 
row. They  are  entitled  to  have  their  securities  presented 
to  the  public  through  institutions  of  the  highest  character 
and  reputation. 


CHAPTER  VII 

ECONOMY   OF   ADMINISTRATION 

First.  General  Statement.  If  profit-sharing,  dividend- 
paying,  surplus-creating,  privately-o\\Tied  banking  insti- 
tutions shall  be  created  to  operate,  direct  and  control  our 
land-credit  system,  every  care  should  be  exercised  to  bring 
into  existence  institutions  which  may  be  economically  oper- 
ated. The  farmers  must  support  these  institutions.  Ad- 
ministration charges  are  as  much  a  part  of  the  cost  of  credit 
as  the  nominal  rate  of  interest.  All  fees,  commissions, 
charges  and  expenses  of  every  kind  and  character  will  be 
paid  by  the  borrowers.  The  farmer  must  pay  the  expense 
of  examining  and  appraising  the  land,  the  cost  of  the  ab- 
stract, and  for  the  preparation  of  papers.  He  must  meet 
the  annual  interest  and  amortization  payments.  His  con- 
tributions make  up  the  reserves  and  guaranty  funds,  the 
surplus  and  undivided  profits.  He  pays  the  annual  di^d- 
dends  to  shareholders.  He  pays  all  rents  and  insurance 
charges.  The  funds  which  go  into  buildings,  furniture, 
stationery,  equipment  and  apparatus  are  paid  for  by  the 
farmer,  or  he  pays  an  annual  interest  charge  on  the  cost 
thereof.  He  provides  salaries  for  officers,  wages  for  em- 
ployees and  incidental,  miscellaneous  and  emergency  ex- 
penditures. He  supplies  the  banking-house  with  light, 
heat  and  all  modern  equipments.  He  liquidates  all  trans- 
portation charges,  pays  the  bills  of  telegraph,  telephone  and 
express  companies,  provides  the  loan  institutions  with  post- 
age and  pays  their  taxes.  Primarily  owners,  managers, 
directors  and  employees  of  these  institutions  in  no  way 

87 


88  Land  Credits 

contribute  to  the  support  of  these  banking  institutions. 
They  receive  annual  dividends  upon  the  capital  furnished. 
They  receive  annual  salaries  for  service  rendered.  They 
are  not  directing  charitable  institutions.  They  are  not 
managing  public  or  semi-public  concerns.  They  are  not 
engaged  in  an  altruistic,  benevolent  or  philanthropic  en- 
terprise. Social  service  is  not  within  the  scope  of  their 
undertaking.  Their  purpose  is  not  to  make  the  farm  more 
attractive  or  agriculture  more  profitable.  The  men  who 
will  put  their  capital  in  these  institutions  and  assume  their 
management  will  be  just  like  men  in  our  commercial  banks, 
like  men  in  our  business  corporations  —  no  better  and  no 
worse.  But  the  farmers,  the  borrowers,  agriculture,  in 
some  form,  will  pay  every  kind,  character  and  description 
of  expense.  Hence,  it  is  of  vital  importance  to  the  farmer 
that  the  land-credit  institutions,  brought  into  existence  by 
national  or  State  legislation,  shall  be  capable  of  economical 
administration.  Of  late  years  we  have  been  emphasizing 
efficiency  in  administration.  Economy  in  administration 
in  our  national.  State,  county,  municipal  and  all  local  gov- 
ernments is  the  crying  need  of  the  hour.  Economy  in 
management,  in  production  and  in  distribution  is  the  one 
thing  that  marks  the  revolution  in  modern  business 
methods.  In  the  mighty  contest  going  on  among  the  great 
nations  of  the  world  for  industrial,  commercial  and  finan- 
cial supremacy  —  economy  in  production,  sale  and  distri- 
bution is  essential  to  leadership.  In  creating  financial  cor- 
porations as  instruments  for  the  organization  of  agricul- 
tural credit,  we  can  not  pay  too  much  attention,  we  can 
not  give  too  careful  consideration,  to  the  question  of 
economical  administration.  Wliatever  may  be  the  other 
merits  of  our  land-credit  system,  it  will  be  a  failure  if  the 
administrative  machinery  created  can  not  be  operated 
economically.  Administrative  machinery  in  government 
or  in  business  corporations  is  like  any  mechanical  tool,  im- 
plement or  machine  used  in  the  industrial  world.     It  can 


Economy  of  Administration  89 

not  be  extensively  used,  unless  economical  in  its  operation. 
That  is  the  test  which  measures  every  mechanical  inven- 
tion. Vast  numbers  of  wonderful  inventions  have  been 
worthless  because  the  cost  of  operation  precluded  their  use 
in  commerce  or  industry.  So  a  system  of  land  credit  may 
be  workable,  but  so  expensive  in  administration  as  to  cause 
wise  and  thoughtful  men  to  reject  it.  All  land-credit  bills 
should  be  critically  examined  to  ascertain  whether  or  not 
they  can  be  economically  administered.  If  not,  they  should 
be  rejected.  And  the  whole  question  of  efficiency  and 
economy  in  administration  of  any  proposed  land-credit 
measure  should  be  carefully,  conscientiously,  and  patiently 
studied  and  discussed. 

Second.  Administration  cliarges  under  the  Commission, 
Suh-committee,  and  Senate  bills.  The  amount  to  be  con- 
sumed in  administrative  charges  is  largely  measured  by  the 
difference  between  the  rate  of  interest  which  the  mortgage 
bond  bears,  and  the  rate  of  interest  the  farmers  pay  on 
farm  mortgages.  The  Commission  Bill,  the  Sub-commit- 
tee Bill,  and  the  Senate  Committee  Bill  all  authorize  the 
banks  to  loan  at  an  interest  rate  at  least  1  per  cent,  higher 
than  the  rate  of  interest  upon  the  mortgage  bonds.  That 
is  to  say,  under  these  bills  the  farmers  would  be  required 
to  pay  1  per  cent,  annually  on  their  loans  to  the  banks, 
to  be  consumed  in  various  kinds  of  administrative  charges. 
The  second  subdivision  in  Section  16  of  the  Commission  Bill 
is  as  follows: 

"  That  the  rate  of  interest  upon  the  farm-land  loans  evi- 
denced by  the  mortgages  or  deeds  of  trust  held  by  the  bank 
as  security  for  its  own  national  laud-bank  bonds  shall 
not  exceed  the  rate  of  interest  paid  on  such  national  land 
bonds  by  more  than  1  per  cent,  annually  upon  the  amount 
unpaid  on  the  loan,  which  said  1  per  cent,  shall  cover  all 
charges  of  administration." 

Section  10  of  the  Senate  Committee  Bill  provides  that 
the  Federal  Farm  Loan  Board  shall  have  power,  among 
other  things: 


90  Land  Credits 

"  (b)  To  review  and  alter  at  its  discretion  the  rate  of 
interest  to  be  charged  by  farm-loan  associations  for  loans 
made  by  them  under  the  provisions  of  this  Act,  said  rates 
to  be  uniform  so  far  as  practicable." . 

Section  25  of  same  bill  in  part  provides: 

"  That  so  far  as  practicable  the  rate  of  interest  on  loans 
secured  by  first  mortgages  under  this  Act  shall  be  uniform, 
as  provided  in  Section  10,  and  the  farm-loan  commissioner 
shall  from  time  to  time  establish  a  specific  rate  of  interest 
to  be  charsfed  on  all  first-mortijaoe  loans  in  each  land-bank 
district.  The  normal  rate  of  interest,  not  including 
therein  any  amortization  payment,  on  first  mortgage  loans, 
shall  be  established  by  adding  1  per  cent,  to  the  rate  of  in- 
terest specified  in  the  latest  issue  of  farm-loan  bonds  in  said 
district.  Whenever,  because  of  local  or  other  conditions,  it 
shall  be  deemed  wise  by  said  farm-loan  commissioner,  in 
order  to  provide  a  special  reserve  against  losses,  to  estab- 
lish a  specific  rate  of  interest  in  excess  of  said  normal  rate, 
the  amount  of  interest  thereafter  paid  by  any  borrower  in 
excess  of  the  amount  which  he  would  have  been  required 
to  pay  if  his  loan  had  been  made  at  the  normal  rate  of 
interest  current  when  said  loan  was  made  shall  be  carried 
to  a  special  reserve  fund,  which  shall  be  specifically  set 
apart  by  the  association  or  the  land  bank  then  holding  said 
loan  for  the  purpose  of  meeting  any  losses  incurred  in  the 
State  where  the  land  mortgaged  to  secure  such  loan  is  lo- 
cated." 

The  fifth  subdivision  of  Section  8  of  the  Senate  Bill  is 
as  follows : 

"  Fifth.  The  rate  of  interest  charged  for  such  loans 
shall  not  exceed  the  legal  rate  current  in  the  State  in  which 
the  farm  land  securing  such  loan  is  situated." 

The  provisions  in  the  Sub-committee  Bill  relative  to  in- 
terest on  bonds  and  mortgages  are  as  follows : 

Subdivision  fifth.  Section  8 : 

"  The  rate  of  interest  charged  for  such  loans  shall  not 


Economy  of  Administration  91 

exceed  the  legal  rate  current  in  the  State  in  which  the  farm 
land  securing  such  loan  is  situated." 

The  Federal  Reserve  Board  is  given  authority  in  Sub- 
division (b),  Section  10^  as  follows: 

"  To  review  and  alter  at  its  discretion  the  rate  of  interest 
to  be  charged  by  national  farm  loan  associations  for  loans 
made  by  them  under  the  provisions  of  this  Act,  said  rates 
to  be  as  nearly  uniform  throughout  each  State  as  the  condi- 
tions of  business  will  permit." 

Section  24  in  part  is  as  folloAVs: 

"  That  whenever  the  rate  of  interest  paid  by  the  borrower 
upon  loans  secured  by  first  mortgages  which  have  been 
transferred  to  a  Federal  land  bank  in  accordance  with  the 
terms  of  this  Act,  shall  exceed  in  any  year  the  rate  of  in- 
terest established  upon  the  bonds  issued  during  that  year 
by  said  land  bank  in  an  amount  greater  than  1  per  cent,  per 
annum,  the  said  excess,  after  deducting  1  per  cent.,  shall 
be  carried  to  a  reserve  fund  which  shall  be  specifically  set 
apart  for  the  purpose  of  meeting  any  losses  incurred 
through  the  non-payment  of  principal  or  interest  of  the 
loans  secured  by  the  said  mortgages." 

An  examination  of  the  foregoing  provisions  shows  that 
under  these  bills  1  per  cent,  per  annum  is  set  apart  to  pay 
administration  charges.  This  would  be  a  most  extravagant 
charge  to  impose  upon  the  farmers  of  the  United  States.  If 
it  will  require  1  per  cent,  per  annum  upon  all  farm  mort- 
gages made  by  these  banks  to  provide  for  administrative 
charges,  that  alone  is  sufiicient  to  condemn  these  bills  and 
the  system  of  land  banks  provided  for  therein.  It  is 
claimed  that  under  the  system  proposed  by  these  bills 
farm  loans  could  be  made  to  farmers  at  5  per  cent,  annual 
interest.  Wliile  5  per  cent,  interest  might  seem  reasonable 
compared  with  the  rates  farmers  are  now  paying  in  some 
sections  of  the  United  States,  there  can  be  no  legitimate  ex- 
cuse for  authorizing  banks  to  charge  1  per  cent,  per  annum, 
throughout  the  life  of  the  loan,  for  administrative  expenses. 


92  Land  Credits 

This  would  mean  that  at  least  one-fifth  of  all  the  interest 
the  farmers  pay  would  go  to  the  land  banks,  which  the  law 
creates  as  middlemen  between  the  farmer  and  the  investor 
who  purchases  the  farmers'  securities.  These  loans  may  ex- 
tend over  a  period  of  thirty-five  years.  It  is  proposed  to 
erect  these  profit-sharing  land  banks  to  stand  between  the 
borrower  and  the  sources  of  credit.  Access  to  credit  can 
not  be  obtained  except  through  these  banks.  The  banks 
collect  interest  from  the  farmer,  pay  interest  on  the  bonds, 
but  retain  1  per  cent,  every  year,  one-fifth  or  more  of  all 
the  interest,  for  administrative  charges.  Some  idea  of  what 
this  would  amount  to  is  apparent  when  we  think  of  the 
amount  of  outstanding  land-mortgage  indebtedness  of 
our  farmers.  As  has  been  shown  elsewhere,  the  aggre- 
gate of  farm-mortgage  indebtedness  is  approximately 
$3,000,000,000.  If  a  new  system  of  land  credit  materially 
reduces  the  interest  charge,  the  bulk  of  this  land-mortgage 
indebtedness,  in  a  reasonable  time,  will  be  transferred  to 
the  loan  institutions  under  the  new  system.  Suppose  one- 
half  of  it  is  brought  under  the  new  land-credit  system. 
One  per  cent,  annually  upon  $1,500,000,000  would  amount 
to  $15,000,000.  In  ten  years,  it  would  amount  to 
$150,000,000.  But  it  would  not  stop  in  ten  years.  This 
1  per  cent,  administrative  charge  allotted  to  the  proposed 
land  banks  would  go  on  and  on  for  an  indefinite  period. 
Suppose  a  farmer  borrows  $3,000.  If  1  per  cent,  annually 
is  allowed  to  the  banks  for  administrative  charges,  on  a 
$3,000  loan  $30  annually  would  be  the  tribute  the  farmer 
pays  to  the  bankers  for  their  services  as  middlemen. 
Now,  1  per  cent,  commission  on  the  face  of  this  loan,  a 
single  charge  would  seem  to  be  a  fair  remuneration  to  the 
land  bank  —  which  only  furnishes  one-fifteenth  to  one- 
twentieth  of  the  capital  used  in  all  these  loans.  But  the 
1  per  cent,  is  an  annual  charge.  In  ten  years,  the  farmer 
making  a  $3,000  loan  would  pay  to  the  bank  $300.  This 
process  goes  on  until  the  loan  is  paid  in  full. 


Economy  of  Administration  93 

The  Senate  Committee  Bill  provides  for  the  organiza- 
tion of  twelve  banks,  one  in  each  of  the  twelve  districts  into 
which  the  United  States  is  to  be  divided.  Each  of  these 
twelve  banks  must  have  a  capital  of  at  least  $500,000.  In 
the  aggregate,  these  twelve  banks  would  have  at  least 
$6,000,000  in  capital.  They  are  allowed  to  make  farm 
loans  and  issue  bonds  up  to  twenty  times  their  capital 
stock.  Should  these  loans  and  bonds  reach  the  limit,  with 
a  capital  of  $6,000,000,  the  total  loans  made  by  these 
banks  would  amount  to  $120,000,000.  One  per  cent,  per 
annum  on  these  loans  would  amount  to  $1,200,000.  This 
would  be  the  annual  tax  which  these  twelve  banks  and  the 
local  associations  would  levy  upon  the  farmers  for  admin- 
istrative charges.  At  this  rate,  in  five  years,  the  farmers 
would  pay  on  these  loans  for  administrative  charges 
$6,000,000,  an  amount  just  equal  to  the  capital  stock  which 
these  banks  are  required  to  have  to  do  business  under  the 
law.  Every  five  years  in  administrative  charges  alone  the 
farmers  would  pay  to  these  twelve  banks  a  sum  equal  to  all 
the  money  invested  in  their  capital  stock.  The  capital 
stock  is  only  the  working  fund  upon  which  the  business  is 
operated.  Certainly  the  Government  should  provide  some 
cheaper  financial  method  than  this  to  enable  the  farmers  to 
reach  the  investors  of  the  country. 

Third.  Administration  charges  of  Land  Credit  Instil 
tutions  of  Other  Countries.  The  administration  charges 
made  by  the  sixteen  State  or  provincial  mortgage  credit 
banks  of  Germany  range  from  one-fourth  to  one-half  of  1 
per  cent,  per  annum. 

Borrowers  from  the  Credit  Foncier  of  France  must  pay 
all  preliminary  costs  of  securing  a  loan,  and  these  usually 
amount  to  about  3.5  per  cent,  of  the  face  of  the  loan. 
The  rate  of  interest  must  not  exceed  by  more  than  six- 
tenths  of  1  per  cent,  the  rate  of  interest  on  the  bonds  from 
the  sale  of  which  the  funds  were  raised.  This  limitation 
does  not  apply  to  loans  made  in  Algeria  and  Tunis. 


94  Land  Credits 

The  Prussian  Central  Land  Credit  Company,  of  Ger- 
many, a  private,  joint-stock,  profit-sharing  mortgage  com- 
pany, corresponding  in  character  to  the  profit-sharing  banks 
proposed  in  the  Commission,  the  Sub-committee,  and  tlie 
Senate  Committee  bills,  charges  borrowers  for  cost  of  busi- 
ness, as  a  commission  on  the  face  of  the  loan  from  1  to  one 
and  one-fourth  per  cent.,  with  an  additional  one-half  of 
1  per  cent,  as  a  profit  to  the  bank.  This  is  an  introductory 
charge  and  is  made  but  once.  The  three  bills  under  con- 
sideration permit  the  banks  to  charge  1  per  cent,  annually 
on  the  amount  due  on  the  loan,  to  pay  administrative 
charges  and  provide  dividends,  surpluses  and  reserves  for 
the  banks. 

Joint-stock  mortgage  companies  of  Germany  have  agents 
to  aid  them  in  securing  business.  These  agents  are  paid 
commissions  —  not  by  borrowers  but  by  the  banks.  ( Ca- 
hill's  report,  S.  Doc.  17,  p.  68,  63rd  Congress.) 

Caliill  in  his  report  (S.  Doc.  17,  pp.  44,  45,  63rd  Con- 
gress) gives  a  general  summary  of  the  cost  of  administra- 
tion of  the  Landschaften,  as  follows : 

"  Besides  the  interest  on  loans  and  the  percentage  pay- 
ments to  sinking  fund,  both  of  which  are  usually  payable 
half-yearly,  borrowers  contribute  toward  the  cost  of  admin- 
istration. Payments  on  this  account  vary  gi-eatly  both  in 
amount  and  in  method  of  calculation  and  levy.  Thus  in 
Silesia  no  charge  is  made  when  properties  are  lent  upon  up 
to  half  their  value;  over  that  proportion  only  one-twelfth 
per  cent,  per  annum  is  normally  charged  by  the  provincial 
corporations  constituting  the  association,  but  half  of  these 
constituent  corporations  waive  the  charge.  In  East  Prus- 
sia one-third  per  cent,  of  the  loan  is  charged  to  borrowers 
in  respect  of  expenses  of  preparation  of  bonds  and  other 
documents  and  the  stamps  thereon;  contributions  for  the 
general  costs  of  administration  of  the  association  are  pay- 
able at  the  rate  of  one-fifth  per  cent,  for  each  of  ten  years, 
but  in  the  case  of  loans  upon  reducible  mortgages  —  this 


Economy  of  Administration  95 

association  makes  sinking-fund  payments  obligatory  only 
in  case  of  loans  exceeding  half  the  valuation  —  this  pay- 
ment is  not  charged  separately  but  covered  out  of  the  sink- 
ing-fund payments.  The  New  Pomeranian  Association 
charges  simply  one-sixth  per  cent,  per  annum,  no  other 
payment  being  normally  charged  beyond  the  interest  and 
redemption  payments.  The  Saxon  Association  requires  a 
payment  of  one-fourth  per  cent,  for  each  of  the  six  years 
following  the  issue  of  the  bonds  to  mortgagor.  The  New 
Brandenburg  Credit  Institute  levies  one-tenth  per  cent,  per 
annum  until  the  loan  is  repaid.  Borrowers  from  the  Kur 
and  Xeumark  Credit  Institute  (for  large  landholders)  are 
chargeable  with  one-fourth  per  cent,  per  annum,  but  owing 
to  this  organization  being  managed  in  common  with  the 
New  Brandenburg  Institute,  the  percentage  is,  in  practice, 
reduced  to  one-tenth.  The  same  percentage  (one-tenth)  is 
also  payable  by  members  of  the  Mortgage  Credit  Union  of 
Schleswig-Holstein.  The  Schleswig-Holstein  Association 
charges  one-tenth  per  cent,  (with  certain  exceptions  in 
which  no  payment  is  required).  The  Posen  Association 
charges  one-eighth  per  cent,  toward  its  administration 
funds,  and,  as  regards  its  preliminary  costs,  6d.  for  the 
first  £150  worth  of  bonds,  Is.  for  the  second,  Is.  6d.  for 
the  third,  2s.  for  the  fourth,  and  2s.  Gd.  for  each  further 
£150  worth  of  bonds  (thus  for  bonds  issued  to  a  borrower 
having  a  total  value  of  £900,  10s.  would  be  payable),  as 
well  as  the  entrance  fees  already  noticed  above.  The 
"VYestphalian  Association  and  the  Bavarian  Agricultural 
Bank  fix  the  charge  for  administration  at  one-fourth  per 
cent,  payable  annually  until  the  loan  is  extinguished." 

One  of  the  salient  features  of  land-credit  institutions  in 
practically  all  the  countries,  where  special  land-credit  in- 
stitutions have  been  established,  is  that  administration  costs 
are  kept  to  the  lowest  limit. 

The  charges  for  administration  of  the  seventeen  pro- 
vincial mortgage  institutes  of  Lower  Austria  are  shown  by  a 


96  Land  Credits 

statement  of  the  Minister  of  Agriculture  (S.  Doc.  214, 
63rd  Congress,  page  190),  as  follows: 

"  To  pay  the  cost  of  running  expenses  and  for  the  crea- 
tion of  a  reserve  fund,  the  provincial  mortgage  institution 
levies  a  contribution  amounting  at  this  time  to  one-fourth 
per  cent,  on  the  loans.  This  levy  is  liable  to  reduction  or 
to  be  discontinued  by  the  Diet.  Mortgage  loans  not  in  ex- 
cess of  the  original  grant  of  6,000  crowns  are  not  required 
to  contribute  to  these  funds." 

The  cost  of  administration,  expenses  of  the  Hungarian 
land-credit  institutions  is  shown  by  the  statement  of  its 
vice-president,  Mr.  Coloman  de  Szill,  Senate  Document 
214,  63rd  Congress,  page  160,  as  follows: 

"  The  administration  expenses  at  the  beginning  were  1 
per  cent.,  but  soon  fell  to  y^  per  cent,  and  later  successively 
to  0.35,  0.30,  0.25,  0.21,  0.19,  and  0.16." 

The  cost  of  administration  of  the  Bavarian  Agricultural 
Bank,  one  of  the  large  farm-mortgage  credit  institutions, 
of  Germany,  is  shown  by  the  statement  of  the  President  of 
the  Bavarian  Council  of  Agriculture,  referring  to  said  bank, 
as  found  in  Senate  Document  214,  63rd  Congress,  page 
268,  as  follows: 

"  The  annual  payments  due  on  the  first-mentioned  long- 
time loans  which  can  not  be  repaid  or  called  in  are:  (1) 
The  rate  of  interest  at  which  they  were  issued  plus  (2)  an 
amortization  quota  of  at  least  one-half  per  cent.,  and  (3)  a 
further  quota  for  management  expenses,  now  equal  to  one- 
fourth  per  cent.,  but  which  is  calculated  only  for  the 
amount  of  capital  still  due;  that  is,  for  the  capital  minus 
what  has  been  paid  in  amortization." 

In  Bavaria,  Germany,  there  are  four  large  joint-stock 
mortgage  banks,  founded  on  profit-making  principles. 
These  are  the  Bavarian  Mortgage  and  Exchange  Bank, 
founded  in  1834,  and  the  South  German  Land  Credit 
Bank,  the  Bavarian  Union  Bank,  and  the  Bavarian  Com- 
mercial Bank.     The  President  of  the  Bavarian  Council  of 


Economy  of  Administration  97 

Agriculture,  in  a  statement  relative  to  the  cost  of  admin- 
istration of  these  banks  (S.  Doc.  214,  63rd  Congress,  pages 
268,  269)  says: 

"  The  routine  management  of  all  these  banks  is  the 
same.  The  rate  of  interest  on  mortgages  is  generally  one- 
half  per  cent,  higher  than  that  on  the  mortgage  bonds. 
This  small  difference  of  one-half  per  cent,  must  cover  all 
expenses  for  salaries,  taxes,  risk,  etc.,  and  it  is  expected  to 
bring  in  the  business  profits  of  these  banks.  The  special 
costs  or  charges  occasioned  by  the  delivery  of  the  bonds  or 
granting  of  mortgages  are  generally  borne  by  the  debtor 
and  are  deducted  from  the  amount  of  the  loan.  The  costs 
include:  (1)  Loss  due  to  the  rate  of  exchange  at  wliich 
the  bond  is  sold;  (2)  the  commission  paid  by  these  banks 
to  other  brokers  on  the  sale  of  the  bonds;  and  (3)  the 
stamp  duty  collected  by  the  German  Empire,  amounting 
to  one-half  per  cent.,  as  vi^ell  as  the  imperial  '  Talon-tax,' 
an  annual  tax  of  about  one-fiftieth  per  cent.  The  brokers 
employed  by  the  mortgage  banks  generally  receive  a  com- 
mission of  one-fourth  per  cent,  of  the  value  of  the  loan." 

In  the  Credit  Union  of  Wiirttemberg,  an  institu- 
tion with  outstanding  loans  of  110,000,000  marks  or 
$26,180,000,  there  is  no  charge  for  administration.  The 
borrower  is  charged  a  premium  of  4.17  per  cent.,  at  the  in- 
ception of  the  loan,  but  at  the  payment  of  the  loan,  this  is 
returned  to  him  with  compound  interest.  This  is  shown 
by  the  testimony  of  the  managing  director  (S.  Doc.  214, 
63rd  Congress,  page  301)  as  follows: 

"  When  the  association  was  started  85  years  ago  it  be- 
gan without  capital.  In  starting  a  loan  a  premium  equiva- 
lent to  4.17  per  cent,  is  charged  to  the  borrower  and  this 
is  added  to  the  loan  in  order  to  create  the  reserve  men- 
tioned above.  This  premium,  however,  has  always  been  re- 
turned with  compound  interest  to  the  borrower  at  the  final 
payment  of  the  loan.  The  present  reserve  fund  is  7,734,142 
marks.     The  rate  charged  borrowers  does  not  include  cost 


qS  Land  Credits 

of  administration.  This  is  covered  by  profits  made  by  the 
association  in  buying  in  below  par  their  own  bonds  when- 
ever opportunity  offers  and  by  discounting  bills  of  exchange 
and  drafts.'^ 

As  to  the  charge  for  the  administration  expenses  of  the 
Nassau  Mortgage  and  Savings  Bank,  Mr.  Eeusch,  the 
Councilor  (S.  Doc.  214,  63rd  Congress,  page  341),  says: 

"  The  current  rate  of  interest  on  mortgage  bonds  is  4 
per  cent.,  but  the  farmer  pays  4I/4  per  cent.,  and  that  one- 
fourth  of  1  per  cent,  goes  toward  the  running  expenses." 

The  administration  charges  of  the  Landschaft  of  Saxony 
are  shown  by  a  statement  of  one  of  the  directors  (S.  Doc. 
214,  63rd  Congress,  page  366)  as  follows: 

"  Every  man  who  gets  money  from  the  Landschaft  pays 
1  mark  for  every  1,000  for  general  expenses  (entrance 
fee),  and  in  addition,  one-fourth  of  1  per  cent,  for  general 
expenditures." 

From  the  foregoing  it  will  be  seen  that  the  charge  of  1 
per  cent,  per  annum  on  the  face  of  the  mortgage,  or  upon 
the  amount  unpaid  upon  the  mortgage,  is  wholly  without 
precedent  among  European  land-credit  institutions.  The 
charges  for  administration  in  these  institutions  range  gen- 
erally from  nothing  up  to  one-half  of  1  per  cent,  per  an- 
num. Seldom  is  the  administration  charge  over  one-fourth 
of  1  per  cent,  per  annum.  It  must  be  borne  in  mind  that 
under  the  "  three  officially  endorsed  "  bills,  the  borrowers 
must  pay  all  preliminary  charges,  like  perfecting  title,  se- 
curing abstract,  and  so  on,  in  addition  to  the  1  per  cent,  per 
annum.  The  Credit  Eoncier,  which  is  a  joint-stock,  profit- 
sharing  company,  is  only  allowed  to  charge  an  interest  rate 
six-tenths  of  1  per  cent,  above  the  rate  of  interest  on  its 
bonds.  The  Prussian  Central  Land  Credit  Company  of 
Germany,  which  makes  loans  on  both  rural  and  urban  prop- 
erty, and  is  one  of  the  largest  institutions  of  the  kind  in 
the  world,  has  been  conducting  its  business  upon  an  ad- 
ministration charge  of  only  i%oo  o^  1  per  cent,  per  annum 


Economy  of  Administration  99 

upon  its  total  loans.  The  United  States  Commission,  and 
those  who  support  the  Commission  Bill  and  the  Senate 
Committee  Bill,  zealously  guard  the  national  treasury  from 
appropriations  to  aid  our  rural-credit  system,  but  are  most 
liberal  in  allowances  to  the  private  banks  for  services  ren- 
dered to  borrowing  farmers.  Why  is  the  money  in  the 
treasury  more  sacred  than  that  in  the  pockets  of  the  Ameri- 
can farmers?  Economy  in  the  administration  of  public 
affairs  is  right.  But  the  just  demand  for  greater  economy 
in  all  our  governments  —  national,  State  and  local  —  only 
demonstrates  the  necessity  of  economy  in  the  administra- 
tion of  our  land-credit  institutions.  Be  it  remembered, 
that  the  farmers  owe  five  or  six  times  as  much  as  the 
amount  of  the  interest  bearing  debt  of  the  United  States, 
and  more  than  the  interest-bearing  debt  of  the  national 
government  plus  the  total  debt  of  all  our  State,  county, 
city,  town  and  local  governments.  This  gives  us  a  concep- 
tion of  the  vastness  of  the  business  proposition  to  be  han- 
dled by  our  farm-credit  institutions,  and  how  absolutely  es- 
sential it  is  that  these  institutions  shall  be  administered  at 
the  lowest  cost  possible. 


CHAPTER  VIII 

COMPETITIVE  LAND  BANKS 

The  United  States  Commission  reached  the  conclusion 
that  a  "  competitive  "  system  of  national  land  banks  would 
be  best.  It  so  recommended  in  its  report.  This  report, 
Senate  Document  380,  Parts  I  and  II,  63rd  Cong.,  page 
28,  says : 

"  As  a  result  it  (the  Commission)  became  convinced  that 
the  system  outlined  in  the  bill  which  it  had  formulated 
possessed  advantages  which  a  central  bank  plan  would  not 
possess  and  encouraged  competitive  banking  to  an  extent 
that  would  not  be  possible  under  a  bill  providing  for  a  cen- 
tral  institution."  .  .  . 

"  Under  the  provisions  of  this  bill,  any  ten  people  can 
organize  a  separate  and  independent  bank  with  a  minimum 
capital,  with  a  tised  ratio  between  that  capital  and  the  vol- 
ume of  land-bank  bonds  which  the  banks  may  issue,  and 
with  an  area  of  operations  as  wide  as  the  State  in  which 
they  are  organized.  Competition  is  invited  in  the  organi- 
zation of  such  institutions.  The  right  to  organize  such  in- 
stitutions is  given  to  every  one,  and  the  greatest  latitude  in 
operation  is  afforded  that  is  thought  to  be  consistent  with 
soundness  and  safety." 

Further  on  page  30,  the  Commission  says: 

"  A  full  consideration  of  these  and  many  other  phases 
of  the  problem  convinced  the  Commission  that  the  proper 
method  of  meeting  these  various  conditions  was  to  author- 
ize competitive  banking." 

The  Commission  Bill  seeks  to  establish  such  a  system. 

lOO 


Competitive  Land  Banks  loi 

It  provides  for  the  organization  of  any  number  of  national 
land  banks,  all  of  which  are  authorized  to  issue  and  sell 
land  mortgage  bonds.  The  advocates  of  this  measure  argue 
that  the  proposed  land  banks  will  compete  with  each  other 
in  a  way  to  keep  interest  rates  down.  One  of  the  primary 
objects  of  a  new  land-credit  system  is  to  lower  existing  in- 
terest rates.  But  will  these  banks  compete  with  each  other 
in  establishing  lower  interest  rates?  The  proposition 
should  be  carefully  considered.  The  farmers  of  the  United 
States  should  understand  it.  The  friends  of  the  farmers 
should  study  the  proposition  with  the  utmost  care.  The 
question  is,  will  there  be  any  such  competition  among  these 
proposed  national  land  banks  as  will,  to  any  appreciable 
degree,  affect  the  rate  of  interest  charged  the  farmers? 
This  question  must  be  answered  in  the  negative. 

First.  In  reaching  a  conclusion  as  to  whether  or  not 
competition  between  land  banks  would  be  a  controlling 
force  in  the  regulation  or  reduction  of  interest  rates  to 
farmers,  common  experience  and  observation  must  be  taken 
into  consideration.  These  banks  will  be  purely  private  in- 
stitutions —  organized  as  profit-sharing  corporations.  In 
this  respect  they  will  be  just  like  existing  banks.  The 
men  who  will  invest  their  money  in  the  capital  stock  of 
these  institutions  will  not  enter  the  enterprise  with  any  al- 
truistic purpose  in  view.  They  will  go  into  the  business 
for  the  money  there  is  in  it.  We  have  now  nearly  27,000 
banks  in  the  United  States.  Our  large  cities  are  crowded 
with  them.  The  small  cities  are  abundantly  supplied. 
Every  town  and  village  of  any  consequence  has  its  bank. 
On  an  average  there  are  about  nine  banks  in  ever  county 
in  the  United  States.  Our  banks  have  been  rapidly  in- 
creasing. Men  with  money  are  constantly  seeking  a  place 
that  is  available  for  the  establishment  of  a  new  bank. 
Banking  is  a  money-making  business.  Experience  and  ob- 
servation teach  us  that  our  banks  do  not  compete  with  each 
other  in  interest  charges.     They  compete  for  depositors; 


102  Land  Credits 

they  do  not  compete  for  borrowers.  On  every  hand,  there 
is  evidence  of  this  fact.  Banks  select  choice  locations  for 
business;  they  erect  costly  edifices  thereon;  they  place 
therein  expensive  and  elegant  furniture;  they  employ  the 
most  efficient  help;  they  advertise  in  the  public  press;  and 
their  capital,  deposits,  surpluses  and  undivided  profits  —  if 
creditable  in  amount  —  are  placed  conspicuously  before  the 
public.  The  chief  purpose  of  all  this  display,  is  to  get  de- 
posits. Banks  openly  solicit  deposits.  With  this  end  in 
view,  bankers  sometimes  participate  in  national,  State 
and  local  politics.  They  expend  money  to  educate  the 
public  in  the  habit  of  depositing  money  in  the  banks.  To 
secure  deposits,  banks  pay  interest  thereon.  Competition 
among  banks  does  increase  the  rate  of  interest  paid  deposi- 
tors. In  the  rate  of  interest  charged  borrowers,  there  is  vir- 
tually no  competition.  Ordinarily  banks  can  make  all  the 
loans  their  deposits  will  justify,  without  soliciting  borrow- 
ers. To  secure  borrowers,  they  do  not  need  to  offer  any 
inducements  in  the  way  of  "  cut "  rates  on  interest.  So  it 
would  be  with  the  proposed  "  competitive  "  national  land 
banks.  They  would  compete  to  secure  deposits,  and  along 
all  those  lines  which  would  enlarge  their  business,  or  add 
to  their  profits.  But  like  existing  commercial  banks,  only 
in  exceptional  cases,  and,  as  a  last  resort,  would  they  adopt 
rate-cutting  in  interest  charges  as  a  means  to  increase 
profits,  to  enlarge  dividends,  or  to  add  to  the  surplus  and 
undivided  profits. 

Second.  The  number  of  banks  that  would  be  organized 
under  the  proposed  law  might  not  be  sufficient  to  make  any 
effective  competition.  Under  the  plan  proposed  by  the 
Commission,  any  number  of  these  banks  may  be  organized. 
That  is,  the  law  in  no  way  limits  the  number  of  banks. 
Unless  these  banks  are  as  profitable  to  shareholders  as  or- 
dinary commercial  banks,  it  is  almost  certain  that  few  of 
them  would  be  organized.  They  can  not  be  as  profitable 
as  commercial  banks  unless  their  charge  for  interest  is  high 


Competitive  Land  Banks  103 

enough  to  maJce  these  profits.  These  banks  are  required 
to  organize  with  a  capital  stock  of  not  less  than  $100,000. 
Under  this  requirement,  capital  would  be  forthcoming  for 
national  land  banks  only  in  the  larger  cities.  We  can  only 
conjecture  as  to  the  number  of  such  banks  that  would  be 
organized  in  an  average  State.  However,  there  is  no  cer- 
tainty that  any  large  number  would  be  organized.  The 
probabilities  are  that  they  would  be  organized  only  in  the 
chief  business  centers  of  a  State  and  that  each  bank  would 
have  a  field  for  operation,  practically  without  competition 
from  similar  banks. 

Third.  In  recent  years  the  influence  of  competition  as 
a  factor  in  all  kinds  of  business  has  greatly  declined.  In 
theory,  we  still  rely  upon  competition  as  a  factor  in  con- 
trolling prices.  In  practice,  there  never  was  a  time  when 
competition  had  so  little  to  do  in  fixing  the  price  of  goods, 
the  cost  of  transportation,  the  pay  for  labor,  or  the  charges 
for  any  service  rendered  by  an  individual  or  corporation. 
Competition  has  practically  ceased  to  be  a  factor  in  trans- 
portation charges.  The  rates  charged  by  public  utility 
companies  are  now  largely  fixed  by  statute  or  controlled 
by  commissions.  Our  manufacturing  industries  have  been 
combined  until  large  corporations  control  the  bulk  of  the 
business.  The  large  concerns  in  each  line  of  business 
largely  fix  the  prices.  The  small  concerns  usually  do  not 
cut  prices  to  get  business.  The  banks  are  not  exceptions. 
The  big  banks  in  the  larger  cities  necessarily  dominate  the 
banking  business  of  the  nation.  In  fixing  interest  rates, 
competition  is  not  now,  and  will  not  be,  an  important  fac- 
tor. Bankers  may  disagree  about  almost  everything  else, 
but  seldom  will  they  disagree  about  what,  from  their  view- 
point, is  a  reasonable  rate  of  interest. 

Fourth.  The  land  banks  under  the  Commission  Bill  are 
limited  in  the  territory  in  which  they  may  make  loans.  A 
bank  is  not  permitted  to  make  loans  outside  of  the  State 
in  which  it  is  located.     In  interest  rates,  there  will  be  no 


I04  Land  Credits 

competition  except  between  the  banks  of  a  single  State.  In 
making  loans,  in  fixing  interest  charges,  the  banks  of 
Massachusetts  would  in  no  way  compete  with  the  banks  of 
Indiana.  The  banks  of  Illinois  would  in  no  way  be  in 
competition  with  the  banks  of  Kansas.  The  banks  of  Kan- 
sas would  not  compete  with  the  banks  of  California.  The 
one,  two,  three,  four,  five  or  more  banks  in  a  State,  in  ob- 
taining loans,  would  be  free  from  competition  from  outside 
the  State  in  which  they  are  located.  The  proposed  law 
gives  the  banks  in  each  State  a  monopoly  to  make  loans 
under  the  new  system  of  land  credit.  In  fact,  the  proposed 
law  restricts  competition  —  encourages  and  promotes  mo- 
nopoly. If  competition  shall  be  relied  upon  as  a  chief  fac- 
tor in  reducing  interest  rates,  why  not  allow  the  national 
land  banks  of  the  East  to  loan  in  the  West?  Why  not 
bring  the  land  banks  of  the  North  in  competition  with  the 
land  banks  of  the  South,  where  generally  a  higher  rate  of 
interest  prevails  ?  There  is  nothing  in  the  Federal  or  State 
laws  which  limits  our  commercial  banks  in  the  area  in 
which  they  may  make  loans.  A  bank  in  Maine  may  make 
a  loan  to  a  resident  of  Alaslva.  The  vast  majority  of  farm 
loans  are  made  by  banks,  insurance  companies  and  mort- 
gage companies  doing  business  outside  of  the  State  where 
such  institutions  are  located.  It  is  this  system  that  now 
constitutes  the  chief  competition  in  the  farm-loan  business. 
The  very  object  of  the  new  system  should  be  to  bring  the 
surplus  capital  in  one  State  directly  to  the  use  of  agricul- 
ture in  another  State.  Any  system  of  land  credit  for  the 
United  States  which  does  not  do  this,  will  not  meet  the 
expectations  of  our  farmers;  neither  wiU  it  bring  to  agri- 
culture adequate  credit  or  a  low  rate  of  interest. 

Fifth.  These  proposed  banks  would  compete  with  each 
other  in  selling  their  farm-mortgage  bonds.  This  would 
not  be  competition  between  the  banks  on  interest  rates 
charged  the  farmers,  but  competition  among  the  farmers 
in  the  sale  of  their  securities.     Here  is  the  supreme  ob- 


Competitive  Land  Banks  lOi; 

jection  to  the  proposed  system  of  "competitive"  land 
banks.  The  farmers  of  each  State  will  be  competing  with 
each  other  in  the  sale  of  their  mortgage  bonds.  The  bonds 
will  be  issued  in  the  name  of  the  banks.  The  real  owner- 
ship is  in  the  farmers.  In  selling  these  mortgage  bonds, 
the  banks  are  merely  acting  as  the  agents  of  the  farmers. 
When  national  land  banks  from  every  section  of  the  country 
sell  their  bonds  in  competition  with  each  other  in  every 
money  market  of  the  country,  this  will  put  the  farmers  in 
competition  with  each  other.  To  make  this  point  clear; 
it  must  be  borne  in  mind  that  the  rate  of  interest  which 
the  bonds  bear  controls  almost  entirely  the  rate  of  interest 
which  the  farmers  will  pay  on  their  mortgages.  With  some 
few  exceptions,  in  European  countries,  the  rate  of  interest 
on  the  bonds  is  slightly  less  than  the  rate  of  interest 
charged  the  farmer.  Under  any  system  of  farm  credits, 
some  charge  must  be  made  to  meet  the  cost  of  administra- 
tion. Capital  of  the  land  banks  is  used  largely  for  an  oper- 
ating fund.  The  banks  in  the  main  do  not  loan  their  own 
money.  The  proposed  system  allows  national  land  banks  to 
loan  from  fifteen  to  twenty  times  the  amount  of  their  capital 
stock.  Suppose  a  land  bank  has  $100,000  capital  stock. 
It  makes  farm  loans  to  the  aggregate  amount  of  $100,000. 
It  is  authorized  then  to  issue  $100,000  in  land-mortgage 
bonds.  These  bonds  are  then  sold  to  investors  wherever 
they  may  be  found.  From  tlie  proceeds  of  the  sale  of 
these  bonds,  the  bank  puts  back  into  its  vaults  $100,000, 
which  it  re-loans.  This  process  is  repeated  over  and  over 
again.  Under  the  Commission  Bill,  the  bonds  issued  must 
not  be  in  excess  of  fifteen  times  the  capital  stock  of  a 
bank.  Under  the  Sub-committee  Bill  the  bonds  may  be 
twenty  times  the  capital  stock  of  the  bank.  Though  in  a 
different  form,  the  bonds  are  in  reality  the  mortgages  of  the 
farmers.  Mortgages  of  the  farmers  have  been  transformed 
into  bonds.  The  object  of  this,  is  to  change  the  farmers' 
mortgages  into  liquid  securities  that  will  be  easily  nego- 


io6  Land  Credits 

tiated,  and  in  form  more  acceptable  to  investors  of  all 
kinds.  In  this  process,  the  land  banks  are  doing  for  the 
farmers'  mortgages  just  what  the  great  packing  companies 
are  doing  for  the  farmers'  cattle,  hogs,  sheep  and  poultry. 
The  cattle  are  changed  to  beef.  The  hogs  are  made  into 
pork.  The  sheep  are  transformed  into  mutton.  The  tur- 
keys, geese,  ducks  and  chickens  are  slaughtered,  dressed 
and  prepared  for  the  cook-ovens  of  the  consumers.  Every 
farmer  knows  that  the  price  he  receives  for  his  cattle,  hogs 
and  other  food  animals  will  be  controlled  by  the  price  of 
beef,  pork,  mutton  and  other  meats.  So  when  the  mort- 
gage bonds,  issued  in  the  name  of  the  banks,  are  placed 
upon  the  money  market,  they  are  still  the  farmers'  securi- 
ties. The  farmer  can  not  secure  low  rate  of  interest  un- 
less the  mortgage  bonds  issued  upon  his  mortgage  can  be 
sold  in  the  money  markets  at  a  low  rate  of  interest.  To 
meet  administrative  charges  or  the  expense  of  the  business 
of  the  banks,  the  mortsao-e  must  bear  a  higher  rate  of  in- 
terest  than  the  bond.  In  other  words,  the  banks  —  acting 
as  middlemen  must  have  a  profit.  They  obtain  this  profit, 
by  requiring  the  farmer  to  pay  a  higher  rate  of  interest 
than  they  pay  on  the  mortgage  bonds,  which  are  simply  the 
paper  or  security  on  which  they  borrow  the  money  from 
investors  to  re-loan  to  the  farmers.  Having  made  it  clear 
that  the  mortgage  bonds  are  in  reality  the  fanners'  securi- 
ties, and  tliat  the  rate  of  interest  these  bonds  bear  will 
control  the  rate  of  interest  the  farmers  will  pay  on  their 
mortgages,  it  becomes  perfectly  plain  that  to  permit  land 
banks  from  every  section  of  the  country  to  sell  their 
mortgage  bonds  in  competition  with  each  other,  simply 
places  the  farmers  in  competition  with  each  other  in  the 
sale  of  their  securities.  iN'ow,  who  reaps  the  benefit 
of  this  competition?  Not  the  farmers,  but  the  investors 
—  the  men  with  money  who  are  able  to  buy  these  bonds. 
The  investors  and  the  farmers  have  opposing  interests. 
The  investor  naturally  wants  his  money  to  bring  him  the 


Competitive  Land  Banks  107 

highest  rate  of  interest  obtainable.  He  wants  to  buy  a 
bond  bearing  a  high  rate  of  interest.  He  is  in  this  case  in 
the  position  of  the  money-loaner.  Wliere  two  securities 
on  the  market  are  both  safe  and  sound,  the  investor  will 
always  buy  the  one  bearing  the  higher  rate  of  interest. 
This  is  human  nature  and  it  is  also  business.  With 
numerous  national  land  banks  selling  mortgage  bonds  — 
selling  the  farmer's  security  —  all  seeking  to  sell  on  the 
same  market  —  all  offering  their  bonds  to  the  same  in- 
vestors—  the  farmers  under  this  system  are  compelled  to 
engage  in  direct  and  fierce  competition  with  each  other 
in  the  sale  of  their  securities.  Further  discussion  along 
this  line  will  be  found  under  the  topic  of  the  multiplicity 
of  bond-issuing  institutions. 

Sixth.  Competition  in  the  sale  of  mortgage  bonds  fa- 
vors the  investors;  non-competition  favors  the  farmers. 
The  bank  or  banks  are  simply  the  sales  agencies  for  farm- 
mortgage  bonds.  The  selling  of  mortgage  bonds  is  not 
materially  unlike  the  marketing  of  ordinary  farm  products. 
To  assert  that  competition  in  sales  agencies  inures  to 
the  benefit  of  the  seller,  is  contrary  to  all  practice,  prece- 
dent and  experience  in  modern  business  methods.  When 
many  persons  are  engaged  in  the  production  of  the  same 
article,  their  interests  can  be  served  by  having  a  single 
sales  agency.  This  is  the  basis  of  cooperation  in  business. 
Cooperation  is  only  one  step  removed  from  monopoly.  In 
fact,  cooperation  is  one  form  of  monopoly.  All  coopera- 
tion is  to  a  certain  degree  monopolistic.  In  Europe  the 
farmers  have  their  cooperative  societies  through  which  they 
purchase  their  supplies  and  sell  their  products.  Germany 
has  25,000  of  these  cooperative  agricultural  societies. 
These  societies  enable  farmers  to  sell  their  products  at 
higher  prices,  and  buy  their  supplies  at  lower  prices.  The 
farmers  of  Europe  have  profited  enormously  through  co- 
operative business  methods.  To  some  extent,  farmers  in 
the  United  States  have  organized  cooperative  societies  to 


io8  Land  Credits 

aid  them  in  marketing  their  products  at  less  expense  and 
at  better  prices.  Manufacturers  have  often  adopted  the 
device  of  placing  the  sale  of  their  products  in  the  control 
of  a  single  corporation.  The  revolution  in  business  meth- 
ods in  recent  years  is  very  largely  a  concentration  either  in 
the  production  or  sale  of  an  article.  If  farmers  profit  by 
the  elimination  of  competition  in  the  sale  of  their  farm 
products  to  consumers,  they  will  profit  by  eliminating 
competition  in  the  sale  of  their  farm-mortgage  securi- 
ties. If  gigantic  business  concerns  find  it  profitable 
to  eliminate  competition  in  selling  manufactured  products, 
merchandise  and  all  other  articles  of  commerce,  farmers 
will  profit  by  eliminating  competition  in  the  sale  of  their 
securities  in  the  money  markets  of  the  world. 


CHAPTER  IX 

INADEQUACY   OF  RESERVE  PUND 

The  Commission  Bill,  the  Sub-committee  Bill,  and  the 
Senate  Committee  Bill  do  not  provide  ample  reserve  funds 
to  provide  perfect  safety  in  the  payment  of  the  bonds,  au- 
thorized to  be  issued  by  the  banks.  The  price  at  which 
bonds  sell  necessarily  determines  the  rate  of  interest  the 
farmers  pay.  The  bonds  are  the  farmers'  mortgages, 
slightly  modified  in  form  so  as  to  conform  to  the  demands 
of  investors,  and  the  usages  of  the  financial  world.  The 
public  must  know  that  these  bonds  are  an  absolute  safe 
investment.  The  law,  therefore,  must  above  all  things,  in 
some  manner,  by  some  method,  means  or  requirement, 
make  the  mortgage  bonds  absolutely  safe.  The  capital 
of  a  bank  should  not  be  regarded  as  a  part  of  the  reserve 
or  guaranty  fund,  except  such  portion  as  shall  be  spe- 
cifically set  aside  for  this  purpose  and  safely  invested  for 
the  benefit  of  bondholders.  The  decree  which  founded  the 
Credit  Foncier  declared  that  its  "  guaranty  fund  "  should 
be  25,000,000  francs^  or  about  $5,000,000.  This  fund, 
now  called  its  capital,  has  grown  to  $45,000,000. 

The  Credit  Foncier  is  required  to  set  aside  additional 
funds  as  a  reserve  to  secure  its  bonds.  This  institution 
does  not  need  to  invest  its  capital  in  making  farm-mortgage 
loans,  because  it  is  allowed  to  sell  its  bonds  in  advance  of 
making  loans,  to  secure  the  funds  therefor.  It  is  plain, 
therefore,  that  the  capital  of  land-credit  institutions  should 
not  be  regarded  as  a  part  of  the  reserve,  guaranty,  or 

1  Senate  Doc.   214,   63r<i  Congress,   p.   655. 

log 


I  lo  Land  Credits 

insurance  fund  only  in  so  far  as  this  capital  shall  be  kept 
invested  in  some  absolutely  safe  securities,  which  will  be 
quick  assets,  available  at  any  time  to  meet  defaults  in  the 
payment  of  interest  or  principal  on  mortgages.  It  will  be 
instructive  to  examine  the  Commission,  the  Sub-commit- 
tee and  the  Senate  Committee  bills  to  ascertain  what  por- 
tion of  the  capital  of  the  proposed  land  banks  is  available 
as  a  reserve,  guaranty  or  insurance  fund. 

Sub-division  (c).  Section  16,  of  the  Commission  Bill 
authorizes  national  farm  land  banks: 

"(c)  To  use  its  capital  stock,  surplus,  and  deposits  as 
a  revolving  fund  for  the  negotiation  of  such  first  mortgage 
or  first  deed  of  trust  farm  loans;  or  to  use  the  same  for 
the  purpose  of  buying  in  its  national  land-bank  bonds  and 
of  holding  them  temporarily ;  or  to  loan  its  capital  and  sur- 
plus on  first  mortgages  or  first  deeds  of  trust  for  a  period 
not  exceeding  five  years:  Provided,  That  not  to  exceed 
50  per  cent,  of  such  capital  and  surplus  may  be  permanently 
invested  in  such  national  land-bank  bonds  and  the  re- 
mainder of  the  capital  and  surplus  can  be  permanently  in- 
vested only  in  United  States  Government  bonds,  in  the 
bonds  of  the  State  in  which  such  bank  is  operating,  or  in 
such  other  securities  as  may  be  approved  by  the  Com- 
missioner of  Farm-Land  Banks." 

The  Federal  land  banks  are  given  power  under  sub- 
division "second,"  section  15,  of  the  Sub-committee  Bill 
to  invest  their  capital  as  follows: 

"  Second.  To  invest  such  funds  as  may  be  in  its  pos- 
session by  the  purchase  of  first  mortgages  on  real  estate 
situated  within  the  Federal  land  bank  district  within 
which  it  is  organized  or  for  which  it  is  acting." 

Under  sub-division  "  second,"  of  section  15,  of  the  Senate 
Committee  Bill,  every  Federal  land  bank  is  given  power 
as  follows : 

"  Second.  To  invest  such  funds  as  may  be  in  its  pos- 
session in  the  purchase  of  first  mortgages  on  farm  lands 


Inadequacy  of  Reserve  Fund  iii 

situated  within  the  Federal  h^nd  bank  district  within  which 
it  is  organized  or  for  which  it  is  acting,  preference  being 
given  to  mortgages  taken  by  farm-loan  associations  within 
the  district." 

Section  13  of  the  Sub-committee  Bill,  H.  E.  16,478, 
introduced  May  18,  1914,  among  other  things  provides  as 
follows : 

"  Ten  per  cent,  of  the  capital  stock  of  every  land  bank 
shall  be  invested  in  bonds  of  the  United  States." 

However,  the  Sub-committee  Bill  re-introduced  March 
2,  1915,  by  Mr.  Bulkley  of  Ohio,  H.  E.  21,603,  contained 
this  pro^dsion: 

"  Five  per  cent,  of  the  capital  stock  of  every  land  bank 
shall  be  invested  in  bonds  of  the  United  States." 

It  will  be  observed  that  the  Federal  land  banks  under 
the  original  bill  were  required  to  invest  10  per  cent,  of 
their  capital  stock  in  government  bonds,  while  under  the 
bill  subsequently  introduced  such  banks  were  required  to 
invest  but  5  per  cent,  of  their  capital  stock  in  government 
bonds. 

In  Section  13  of  the  Senate  Committee  Bill  the  Federal 
land  banks  are  required  to  invest  5  per  cent,  of  their  capital 
stock  in  government  bonds.     The  provision  is  as  follows: 

"  Five  per  cent,  of  the  capital  stock  of  every  land  bank 
shall  be  invested  in  bonds  of  the  United  States." 

The  foregoing  provisions  show  that  in  the  Commission 
Bill  the  land  banks  may  keep  their  entire  capital  invested 
in  farm  mortgages,  with  bonds  outstanding  against  those 
mortgages.  The  bond-issuing  banks  under  the  Sub-com- 
mittee and  Senate  Committee  bills  are  likewise  authorized 
to  invest  all  their  capital  in  farm  mortgages,  except  5  per 
cent,  thereof  whicli  must  be  invested  in  government  bonds. 
Only  that  portion  of  the  capital  which  is  required  to  be  kept 
invested  in  government  bonds  should  be  regarded  as  a  part 
of  the  reserve,  giuiranty  or  insurance  fund.  It  is  true,  of 
course,  that  the  capital  invested  in  farm  mortgages  would 


1 1 2  Land  Credits 

be  available  as  a  final  asset  to  meet  the  obligations  of  a 
land  bank,  in  case  of  failure  or  bankruptcy  proceedings. 
But  the  capital  of  a  land  bank  which  is  used  as  an  operat- 
ing or  working  fund  to  enable  the  bank  to  carry  on  its 
business  of  negotiating  and  selling  farm  loans,  should  not 
be  regarded  as  any  part  of  the  fund  designed  to  meet 
losses.     Because  capital  thus  used  is  naturally  not  available 
when  most  needed,  and  when  thus  used  impairs  the  credit 
of  the  bank.     Under  the  Commission  Bill  the  bond-issuing 
bank  may  have  a  capital  of  only  $100,000.     The  bank  may 
issue  mortgage  bonds  up  to  fifteen  times  its  capital  or  to 
the   amount  of   $1,500,000.     This   bill   does   not  provide 
for  the  accumulation  of  any  reserve  as  special  security  for 
the  bonds  issued,  but  does  limit  annual  dividends  to  6 
per  cent,  per  annum  until  a  surplus  shall  be  accumulated 
equal  to  15  per  cent,  of  the  authorized  capital.     Whether 
any  such  surplus  would  be  created  is  a  matter  of  uncer- 
tainty.    But  if  a  bank  accumulated  a  surplus  equal  to  15 
per  cent,  of  its  capital  of  $100,000,  the  surplus  Avould 
amount  to  $15,000.     This  would  be  but  1  per  cent,  of 
the  outstanding  bonds  which  it  would  be  authorized  to 
issue.     The  bill  provides  for  no  reserve  fund.     The  Sub- 
committee Bill  requires  that  one-fourth  of  the  net  earnings 
shall   be  carried   to   a   "  reserve   account,"   until  it   shall 
equal  20  per  cent,  of  the  outstanding  capital  stock  of  the 
bank.     The  bond-issuing  bank  with  a  minimum  capital 
stock  of  $500,000,  would  be  required  to  have  a  reserve 
account  of  $100,000.     Under  the  bill  the  bank  is  allowed 
to  issue  bonds  equal  to  twenty  times  its  capital  stock  or  to 
the  amount  of  $10,000,000.     One  hundred  thousand  dol- 
lars reserve  would  be  1  per  cent,  of  the  amount  of  bonds 
it  would  be  authorized  to  issue.     Five  per  cent,  of  its  capital 
must  be  invested  in  government  bonds,  which  would  amount 
to  $25,000.     This  would  amount  to  one-fourth  of  1  per 
cent,  of  its  outstanding  bonds.     This  would  provide  a  total 
reserve   fund   of  only   one   and   one-fourth   per   cent,   of 


Inadequacy  of  Reserve  Fund  113 

the  outstanding  bonds  the  bank  would  be  authorized  to 
issue.  The  provisions  rehitive  to  the  reserve  account  in  the 
Senate  Committee  Bill  are  the  same  as  in  the  Sub-commit- 
tee Bill,  except  that  the  Farm  Loan  Commissioner  is  re- 
quired to  establish  a  specific  rate  of  interest  in  each  State. 
When  the  "  specific  rate  "  is  above  the  normal  rate,  the 
excess  interest  collected  thereby  is  required  to  be  placed 
in  a  "  special  reserve  "  fund  to  meet  losses  from  non-pay- 
ment of  mortgages  in  such  State.  There  is  no  provision 
which  in  any  way  fixes  the  amount  of  this  "  special  re- 
serve "  fund.  The  reserve  fund  in  all  these  bills  is  left 
under  the  control  of  the  bank.  There  is  no  provision  for 
its  investment.  No  requirement  that  it  shall  be  placed  at 
interest,  and  no  safeguard  to  insure  its  safety.  It  will  be 
interesting  to  compare  these  provisions  with  the  reserve  re- 
quirements of  European  land-credit  institutions.  As  shown 
above,  the  capital  of  the  Credit  Foncier  of  France  was  orig- 
inally designated  as  a  "  guaranty  fund,"  and  is  still  largely 
invested  to  make  it  such.  In  addition  it  is  required  to  set 
aside  from  5  to  20  per  cent,  of  its  net  annual  earnings 
as  an  obligatory  reserve  until  the  reserve  amounts  to  a 
sum  equal  to  one-half  the  capital  stock  of  the  bank.  This 
obligatory  reserve  is  now  equal  to  one-tenth  the  capital 
stock.  The  Prussian  Central  Land  Credit  Joint-Stock 
Company,  one  of  the  greatest  mortgage  credit  companies  in 
existence,  with  a  capital  stock  of  $10,656,000,  in  1911  had 
a  reserve  fund  equal  to  39.3  per  cent,  of  its  capital  stock.^ 
The  Prussian  Provincial  Aid  Banks  are  required  to  place 
the  net  profits  into  the  reserve  account  until  it  equals 
5  per  cent,  of  the  outstanding  bonds.  This  is  in  striking 
contrast  with  the  provisions  of  the  three  bills  above  re- 
ferred to  which  require  a  reserve  fund  equal  to  only  1 
per  cent,  of  the  outstanding  bonds.  The  capital  stock  of 
the  Bavarian  Mortgage  and  Exchange  Bank  (Germany),  a 

1  Cahill's  Report,  Senate  Doc.  17,  63rd  Congress,  p.  74. 


114  Land  Credits 

joint-stock  profit-sliaring  company,  in  1911  amounted  to 
£3,000,000,  or  $14,580,000,  and  its  reserves  amounted  to 
£3,870,913,  or  $13,952,G37.^  In  other  words,  the  reserves 
were  almost  equal  to  the  capital  stock  or  96.6  per  cent, 
thereof.  The  reserves  of  the  Bavarian  Union  Bank  at  the 
same  date  amounted  to  40  per  cent,  of  its  capital.  The 
capital  of  the  Bavarian  Agricultural  Bank  in  1911,  was 
£311,105,  or  $1,025,970,  and  its  reserves  were  £55,997,  or 
$372,145,  or  over  36  per  cent,  of  its  capital.^  The  capital 
of  the  forty-six  Noko  Ginko  Banks  of  Japan  in  1913 
amounted  to  $17,166,060,  their  outstanding  loans  were 
$47,560,000,  and  their  reserves  were  $4,551,076.  Their 
total  reserves  were  over  36  per  cent,  of  their  aggregate 
capital,  and  over  9.8  per  cent,  of  the  total  outstanding 
loans.^  The  savings  banks  in  Italy  are  required,  if  they 
have  capital  stock,  to  set  aside  one-fourth  of  the  net  earn- 
ings as  a  reserve  fund,  and  if  they  have  no  capital  stock 
the  reserves  must  accumulate  until  they,  with  the  guaranty 
fund,  equal  10  per  cent,  of  the  debentures  in  circulation. 

The  nine  land  improvement  annuity  banks,  and  the  eleven 
provincial  aid  banks  of  Germany,  are  required  to  put  all 
profits  in  the  reserve  fund  until  it  equals  5  per  cent,  of 
the  outstanding  debentures.* 

The  reserves  of  the  National  Land  Credit  Institute  for 
Small  Landowners  of  Hungary  at  the  end  of  1913, 
amounted  to  $3,756,585  with  loans  about  $54,390,000.  The 
reserves  were  over  6.1  per  cent,  of  outstanding  loans.^ 

The  Minister  of  Agriculture  of  Austria  in  a  statement 
referring  to  the  reserve  funds  required  of  the  Provincial 
Mortgage  Institute  of  Lower  Austria  (S.  Doc.  214,  63rd 
Congress,  page  190),  says: 

1  Cahill,  Senate  Doe.  17,  63rd  Congress,  p.  68. 

2  Cahill's  Report,  Senate  Doc.  17,  63rd  Congress,  p.  42. 
sHerrick,  p.  192. 

4  Herrick,  p.  97. 
sHerrick,  p.  167. 


Inadequacy  of  Reserve  Fund  115 

"  The  institution  is  required,  both  as  regards  mortgages 
and  communal  loans,  to  create  a  reserve  of  5  per  cent,  on 
the  value  of  every  debenture  or  communal  bond  issued  to 
cover  losses  which  may  occur  in  its  transactions.  Un- 
expended balances  are  applied  to  the  amelioration  of  credit 
conditions  in  harmony  with  the  public-spirited  principles  of 
the  institution." 

In  a  statement  issued  by  the  Eoyal  Hungarian  Depart- 
ment of  Agriculture,  S.  Doc.  214,  63rd  Congress,  page  131, 
referring  to  the  reserves  required  of  mortgage  credit  in- 
stitutions of  Austria,  it  is  said: 

"  For  the  securing  of  the  mortgage  bonds,  a  special 
reserve  fund  (to  be  managed  separately)  must  be  created, 
which  fund  must  represent  at  least  5  per  cent,  of  the  value 
of  the  mortgage  bonds  issued  and  must  in  any  case  amount 
to  at  least  400,000  crowns  ($80,000).  If  the  institute  in 
question  desires  that  its  mortgage  bonds  should  be  tax- 
free  and  should  enjoy  the  privilege  of  being  accepted  as 
investments  for  trust  funds  in  chancery,  the  special  reserve 
fund  must  amount  to  not  less  than  3,000,000  crowns  ($600,- 
000).  Such  reserve  fund  serves  exclusively  as  a  security 
for  the  owners  of  the  mortgage  bonds  as  a  body.  No  other 
persons  can  have  any  claim  on  the  same  —  even  in  cases  of 
bankruptcy  —  until  all  claims  of  the  owners  of  the  mort- 
gage bonds  have  been  satisfied." 

The  Hungarian  Land  Credit  Institution  has  some  un- 
usual provisions,  constituting  the  reserve,  or  guaranty 
fund  to  secure  the  payment  of  its  debentures.  In  addition 
to  the  capital  and  the  mortgages,  this  institution  has  a 
"  mortgage  bond  insurance  fund,"  equal  to  5  per  cent,  of 
the  outstanding  bonds,  a  reserve  fund,  and  a  "mutual 
solidarity  fund"  equal  to  1  per  cent,  of  the  face  of  each 
loan.  A  statement  relative  thereto,  made  by  Count  Hoyos, 
a  director  of  the  institution,  as  shown  in  S.  Doc.  214,  63rd 
Congress,  page  156,  is  as  follows : 

"  The  mortgage  bonds  are  secured  ( 1 )  by  the  mortgaged 


Ii6  Land  Credits 

property  itself;  (2)  by  the  capital  of  the  institution;  (3) 
by  the  mortgage-bond  insurance  fund  (5  per  cent,  of  the 
bonds  outstanding)  ;  (4)  by  the  reserve  fund;  (5)  by  the 
mutual  solidarity  fund  of  the  members  of  the  institution. 
For  this  latter  purpose  every  one  who  receives  a  loan  has 
1  per  cent,  deducted  from  the  loan,  which  is  deposited  in 
the  mutual  solidarity  fund.  In  case  of  losses  this  money 
must  be  called  in  first  to  replace  them.  After  63  years  — 
that  is  to  say,  at  the  end  of  the  loan  —  it  is  returned  to 
the  borrower.'' 

Baron  von  Gutstadl,  a  director  of  the  Landschaft  of  the 
Province  of  Saxony,  Germany,  referring  to  the  amount  of 
reserve  fund  of  the  association,  S.  Doc.  314,  page  364,  63rd 
Congress,  says: 

"  The  Landschaft  has  no  desire  to  earn  money ;  it  has 
no  use  for  earnings  except  to  pay  running  expenses.  No 
dividends  are  paid,  for  there  are  no  shares  and  no  dividend 
profits.  However,  a  surplus  is  accumulated  and  placed  to 
the  credit  of  the  Landschaft  until  the  fund  reaches  5  per 
cent,  of  the  outstanding  obligations  of  the  association." 

The  reserve  primarily  is  to  secure  the  bonds.  It  should 
bear  some  relation  to  the  outstanding  bonds  or  debentures 
of  the  institution.  Every  land-credit  institution  should  be 
required  to  accumulate  and  maintain  a  reserve  fund  equal 
to  at  least  5  per  cent,  of  its  outstanding  bonds  or  deben- 
tures. 

It  should  not  be  overlooked  that,  under  the  Sub-commit- 
tee and  Senate  Committee  bills,  after  a  reserve  equiva- 
lent to  1  per  cent,  of  the  outstanding  bonds  has  been  ac- 
cumulated, and  a  6  per  cent,  dividend  shall  have  been 
paid  to  shareholders,  the  balance  of  the  profits  go  into 
the  treasury  of  the  United  States.  Tliis  is  a  most  remark- 
able provision.  These  bills  jealously  guard  the  United 
States  from  loss.  The  Sub-committee  Bill  does  authorize 
the  United  States  under  certain  conditions  to  purchase  the 
bonds  of  these  banks.     But  as  these  bonds  bear  interest,  and 


Inadequacy  of  Reserve  Fund  117 

are  absolutely  safe  investment,  there  is  no  risk  or  financial 
loss  in  the  transaction.  But  the  Federal  government  is 
to  have  all  profits  after  the  payment  of  a  G  per  cent,  divi- 
dend to  shareholders.  To  require  the  farmers  of  the  United 
States  to  pay  on  their  farm-mortgage  loafis  an  interest  rate 
high  enough  to  pay  the  administrative  charges  of  expen- 
sively operated  profit-sharing  banks,  to  pay  6  per  cent, 
dividends  on  the  capital  invested  in  such  banks,  and  then 
contribute  through  interest  payments  an  additional  sum 
toward  defraying  the  expenses  of  the  national  government, 
is  indefensible.  If  the  Federal  government  had  furnished 
the  entire  capital  of  these  banks,  if  it  had  guaranteed  the 
payments  of  its  bonds,  if  it  had  assumed  any  liability,  or 
given  the  banks  a  subsidy,  there  might  be  some  excuse  for 
it  accepting  a  share  of  the  profits.  But  the  point  is  this: 
it  is  the  special  duty  of  the  Federal  government  in  bring- 
ing into  existence  land-credit  institutions,  to  be  the  in- 
struments of  agricultural  credit,  to  see  to  it,  that  these  in- 
stitutions shall  not  issue  mortgage  bonds,  about  the  safety 
of  which  there  can  be  any  question.  The  reserve  funds  are 
the  one  and  the  only  source  from  which  losses  can  be  paid. 
The  capital  of  the  banks  can  not  be  used  for  this  purpose 
without  undermining  the  foundation  upon  which  joint- 
stock  mortgage  banks  are  built.  But  without  an  ade- 
quate reserve  fund  to  insure  against  losses,  it  is  seriously 
proposed  to  take  profits  from  the  banks  to  replenish  the 
funds  in  the  National  Treasury.  The  United  States  un- 
der the  Constitution  has  plenary  power  of  taxation.  The 
national  expenditures  are  enormous  and  are  ever-increas- 
ing. The  annual  appropriations  are  constantly  mounting 
higher.  But  the  Federal  government  has  not  reached  the 
point  where  it  is  necessary  to  increase  interest  charges 
on  farm  loans  to  add  to  its  annual  revenue.  Whatever  may 
be  the  character  of  the  land-credit  institutions  which  may 
be  created,  after  the  payment  of  administrative  expenses, 
including  dividends  upon  capital  used,  the  balance  of  the 


ii8  Land  Credits 

profits  must  go  into  the  reserves.  There  these  profits  will 
add  financial  strength  to  our  land-credit  institutions,  add 
value  to  their  securities,  increase  their  sale,  enhance  the 
credit  of  the  farmers,  and  finally  become  a  most  important 
factor  in  reducing  the  average  interest  charge.  There  may 
be  room  for  argument  on  the  question  to  use  the  funds 
or  the  credit  of  the  Government  to  aid  agricultural  credit. 
There  can  be  no  room  for  argument  on  the  proposition 
to  use  the  interest  paid  by  farmers  to  aid  the  Government. 
The  reserve  fund  should  be  ?et  apart  as  an  emergency 
fund  to  meet  unexpected  losses.  Its  object  is  to  insure 
the  payment  of  the  mortgage  bonds.  It  is  a  fund  strictly 
supplementary  to  the  mortgages  themselves,  which  are  the 
primary  security  for  bonds  issued  thereon.  Now,  the  mort- 
gages used  as  a  basis  for  bonds  are  set  aside,  placed  in 
the  hands  of  a  fiduciary  agent,  even  beyond  the  control  of 
the  institution  issuing  them.  The  fiduciary  agent  holds 
them  in  trust  for  the  use  and  benefit  of  the  bondholders. 
They  have  a  first  lien  upon  them,  superior  to  the  claims  of 
all  other  creditors.  But  the  reserve  fund  is  likewise  a  trust 
fund  created,  and  held  to  secure  bondholders.  Experience 
has  shown  that  some  borrowers  will  be  in  default  in  the 
pa}Tiient  of  interest  or  of  the  principal  of  their  indebted- 
ness. The  reserve  fund  is  to  meet  such  losses.  The  bond- 
holders should  have  a  first  lien  on  the  reserve  funds.  And 
this  fund  like  the  mortgages  used  as  a  basis  for  bonds, 
should  be  in  the  hands  of  a  fiduciary  agent.  The  banks 
have  no  more  right  to  have  the  use,  custody  and  control  of 
the  reserve  funds  than  they  do  to  have  the  control  of  the 
mortgages  used  as  a  basis  for  bonds.  The  mortgages 
though  held  by  a  fiduciary  agent  in  trust,  are  productive. 
Through  the  annual  interest  and  amortization  payments,  a 
fund  is  created  to  meet  the  interest  charge  on  bonds,  and  a 
sinking  fund  is  created  to  pay  the  principal  of  the  bonds. 
This  sinking  fund  is  used  every  year  to  reduce  bonds,  or  is 
placed  at  interest  so  that  its  accumulation  will  finally  ex- 


Inadequacy  of  Reserve  Fund  119 

tinguisli  the  bonded  indebtedness.  So  the  reserve  fund 
should  be  placed  at  interest,  or  invested  in  productive  se- 
curities, of  unquestionable  character.  In  this  way  the  fund 
grows  froinr  year  to  year.  As  the  reserve  funds  grow,  the 
security  of  the  bondholders  is  increased,  the  credit  of  the 
farmers  is  enhanced,  the  institutions  administering  our 
land-credit  system  grow  in  the  confidence  of  investors  and 
the  public  generally,  and  become  every  year  more  capable 
of  rendering  service  to  the  farmers,  to  the  public  and  to  the 
nation. 


CHAPTER  X 

MULTIPLICITY   OF   BOXD-ISSUING   BANKS 

First.  General  Statement.  The  mortgage  bond  is  the 
farmers'  security.  Its  character  will  be  judged  by  the  in- 
stitution issuing  it.  A  poor  security  issued  by  a  strong 
institution  will  sell  better  than  a  good  security  issued  by 
a  weak  institution.  The  farmers  are  entitled  to  have  their 
securities  issued  by  an  institution  that  will  not  vitiate 
their  character  in  the  eyes  of  investors.  The  success  of 
our  land-credit  system  in  a  very  high  degree  depends  upon 
the  institution  authorized  to  issue  and  sell  farm-mortgage 
bonds.  If  the  bond-issuing  institution  is  right,  our  land- 
credit  system  can  not  fail;  if  the  bond-issuing  institution 
is  wrong,  it  can  not  succeed.  "Water  can  not  rise  above 
its  source.  Farm-mortgage  bonds,  in  the  money  markets, 
can  not  rise  above  the  institution  from  whence  they  come. 
The  Commission,  the  Sub-committee  and  the  Senate  Com- 
mittee bills  propose  a  multiplicity  of  bond-issuing  land 
banks.  This  brings  up  one  of  the  vital  problems  of  land- 
credit  legislation.  Shall  we  distribute  the  power  to  issue 
farm-mortgage  bonds  among  many  institutions,  or  shall 
it  be  centralized  in  one  or  a  few  institutions?  The  im- 
portance of  this  question  demands  that  it  be  discussed  some- 
what at  length. 

Second.  Multiplicity  of  Bond-Issuing  Institutions.  As 
originally  introduced  the  Commission  Bill  authorized  the 
formation  of  any  number  of  national  farm-land  banks  with 
capital  stock  of  not  less  than  $10,000,  and  authorized  any 
of  these  banks  to  issue  farm-mortgage  bonds.     The  revised 

120 


Multiplicity  of  Bond-Issuing  Banks      I2l 

Commission  Bill,  which  is  now  recognized  as  the  Commis- 
sion Bill,  requires  these  banks  to  have  not  less  than  $100,- 
000  capital.  Under  this  bill  any  number  of  these  banks 
may  be  formed,  and  they  are  all  authorized  to  issue  and 
sell  farm-mortgage  bonds.  It  is  a  matter  of  conjecture 
as  to  how  many  of  these  banks  will  be  organized.  The 
authors  of  the  bill,  however,  assume  that  there  will  be 
many  of  them  organized.  The  Senate  Committee  Bill  au- 
thorizes the  organization  of  two  classes  of  land  banks.  It 
authorizes  the  formation  of  twelve  banks,  in  twelve  dif- 
ferent districts,  into  which  the  United  States  shall  be 
divided  by  the  Federal  Farm  Loan  Board.  These  twelve 
district  banks  are  authorized  to  issue  farm-mortgage  bonds. 
In  addition  to  these  twelve  district  banks,  the  Senate  Com- 
mittee Bill  authorizes  the  formation  of  any  number  of 
Federal  farm-bond  banks,  with  capital  stock  of  not  less 
than  $250,000.  These  are  authorized  to  issue  farm-mort- 
gage bonds.  Under  this  bill  there  would  be  not  only  many 
banks  issuing  bonds,  but  there  would  be  two  classes  of  bond- 
issuing  banks,  wholly  independent  of  each  other. 

The  Sub-committee  Bill  authorizes  the  formation  of 
twelve  district  banks,  one  in  each  of  the  twelve  districts 
into  wdiich  the  United  States  shall  be  divided  by  the  Fed- 
eral Eeserve  Board.  Should  this  system  be  adopted  there 
would  be  twelve  bond-issuing  banks  in  the  United  States. 
The  plan  presented  in  the  Sub-conmiittee  Bill  is  far  prefer- 
able to  the  plan  proposed  by  the  others.  This  bill  does 
recognize  the  principle  of  unity  and  centralization  in  the 
bond-issuing  power.  But  as  twelve  bond-issuing  banks 
would  be  better  than  100,  so  one  would  be  preferable  to 
twelve. 

Third.  The  Howard  BUI.  Mr.  Howard,  a  Represen- 
tative from  the  State  of  Georgia,  introduced  in  the  Sixty- 
third  Congress,  H.  E.  12,746.  This  is  an  elaborately  pre- 
pared bill.  It  creates  a  system  of  national  farm-land 
banks,  embracing,  (1)  local  national  land  banks,  (2)  State 


122  Land  Credits 

national  farm-land  banks,  and  (3)  the  United  States  na- 
tional .farm-land  bank,  located  at  Washington,  District 
of  Columbia.  These  are  connected  Trith  each  other  and 
form  a  national  system.  Under  this  system  only  the  one 
bank  —  the  United  States  National  Farm-Land  Bank  — 
is  authorized  to  issue  farm-mortgage  bonds.  The  United 
States  Commission  did  not,  of  course,  overlook  the  question 
of  centralization  of  the  bond-issuing  power  in  one  institu- 
tion.    In  its  report  it  says : 

"  A  second  great  question  which  confronted  the  Com- 
mission was  the  question  as  to  whether  it  should  recom- 
mend a  central  bank,  which  alone  should  issue  land-bank 
bonds  based  on  mortgages  guaranteed  by  local  institutions 
and  forwarded  to  the  central  bank.  The  arguments  in 
favor  of  such  an  institution  were  elaborately  presented  and 
carefully  considered.  It  was  urged,  with  great  force,  before 
the  Commission  that  a  single  central  bank  of  issue,  having 
a  large  capital  and  alone  emitting  land-bank  bonds,  would 
create  a  confidence  in  the  investing  public  which  would 
tend  to  improve  the  market  for  mortgage  loans,  which 
would  standardize  the  farm  bonds  as  an  investment,  and 
which  would  in  many  ways  redound  to  the  interest  of  the 
farmer.  .  ,  .  The  advantages  and  disadvantages  of  such  a 
plan  were  thought  to  be  worthy  of  such  serious  considera- 
tion that  a  bill  outlining  this  method  and  providing  for 
every  detail  of  the  operation  of  such  banks  in  connection 
with  mortgage  credit  was  drawn  up  and  fully  discussed." 

The  Howard  Bill  represents  the  plan  rejected  by  the 
Commission.  No  one  questions  the  good  faith  of  the  mem- 
bers of  the  Commission,  or  the  honesty  of  their  convictions. 
Nevertheless,  it  was  unfortunate  for  the  farmers  of  the 
United  States  that  the  Commission  was  swerved  from 
what  appears  to  have  been  its  original  inclination  to  recom- 
mend a  system  of  land-credit  institutions  which  cen- 
tralized the  bond-issuing  power  in  one  great  institution 
which  would  be  national  in  its  character,  in  its  scope,  in 
its  advantages,  in  its  benefits,  and  in  its  blessings. 


Multiplicity  of  Bond-Issuing  Banks     123 

Fourth.  Experience  of  Other  Countries.  In  reaching 
a  conclusion  on  this  question,  the  institutions  of  other  coun- 
tries should  be  carefully  studied. 

The  advantages  of  one  large  institution  as  the  bond-issu- 
ing instrument  is  shown  in  the  history  of  tlie  Landschaften 
of  Germany. 

To  meet  the  embarrassment  under  which  the  single 
Landschaft  at  times  labored  on  account  of  a  lack  of  a 
market  for  its  debentures,  in  1873  a  central  Landschaft  was 
organized  composed  of  eight  Landschaften.  It  is  true  that 
a  majority  of  the  Landschaften  have  not  joined  this  central 
organization,  but  the  central  organization  has  demon- 
strated its  usefulness  to  the  organizations  belonging  thereto. 

Cahill  in  his  report  (S.  Doc.  17,  63rd  Cong.,  pages 
40,  41)  referring  to  the  organization  of  the  Central  Land- 
schaft, says: 

"  The  object  in  view  in  establishing  the  central  associa- 
tion was  to  open  a  wider  market  for  the  bonds  of  the 
provincial  associations.  It  was  expected  that  bonds  is- 
sued by  a  central  institution  would  find  a  better  market, 
not  only  in  Germany,  but  also  in  foreign  countries,  than 
bonds  associated  with  merely  provincial  institutions.  The 
bonds  were  to  be  printed  in  several  languages.  By  obtain- 
ing a  wider  market  they  would  be  less  exposed  to  fluctua- 
tions, as  bad  harvests  and  other  possible  evils  are  usually 
only  local,  and  their  occurrence,  while  it  might  affect 
seriously  bonds  of  provincial  associations,  would  not  affect 
those  resting  upon  a  broader  basis.  About  the  period 
(1870-1875)  when  the  central  association  was  founded, 
the  market  prices  of  the  bonds  of  several  associations  were 
low  and  unstable.  For  some  time  after  the  establish- 
ment of  that  association  prices  improved  ;  but  the  associa- 
tion has  not  met  with  the  success  anticipated." 

In  discussing  some  of  the  reasons  why  the  Central  Land- 
schaft has  not  attained  the  success  anticipated,  Mr.  Cahill 
(S.  Doc.  17,  63rd  Cong.,  page  41),  says: 


124  Land  Credits 

"  The  want  of  success  is  attributed  to  two  principal 
causes:  (1)  the  unwillingness  of  the  provincial  associa- 
tions to  renounce  any  of  their  independence  in  favor  of 
a  central  body,  and  ("2)  the  general  historical  development 
of  these  associations  —  the  market  for  their  bonds  has  al- 
ways been  mainly  provincial,  bonds  of  particular  associa- 
tions findins:  their  chief  sale  in  their  own  Provinces,  and 
being  in  many  cases  only  quoted  on  one  or  two  exchanges 
in  addition  to  that  at  their  own  center,  while  in  the  case 
of  the  largest  organizations,  e.  ff.,  that  of  Silesia  and  east 
Prussia,  the  German  market  was  already  at  their  disposal.'' 

The  Him2:arian  Boden-Credit  Institute  of  Hun^arv  is 
an  example  of  a  central  institution  for  promoting  land 
credit.  This  institute  was  founded  in  1S63.  It  is  not  a 
protit-sharing  institution.  In  1912,  its  loans  were  $119,- 
000.000  and'it  had  $100,000,000  in  outstanding  bonds.  It 
started  out  with  a  capital  of  $821,730.  This  has  been  in- 
creased, until  in  1910,  the  capital  and  reserves  amounted 
to  $10,000,000. 

Hungary  has  adopted  centralization  in  her  land-credit 
institutions.  There  are  in  Hungary  three  State  land-credit 
institutions.  Each  one  is  designed  to  work  in  a  separate 
field.  Each  institution  is  national  in  its  scope  and  char- 
acter. The  institutions  are  as  follows:  1.  The  Hunira- 
rian  Boden-Kredit  Institute,  which  makes  loans  to  indi- 
viduals and  associations  and  promotes  land  improvement 
and  irrigation.  2.  The  Xational  Land  Credit  Institute 
for  small  landowners  in  Hunsarv,  the  name  of  which  indi- 
cates  its  object;  and  3.  The  National  Federation  of  Hun- 
garian Land  Credit  Institutions. 

The  first  of  these  were  founded  in  1S63,  the  second  in 
1ST9,  and  the  third  in  1911.  These  institutes  are  all  na- 
tional in  policy,  in  purpose,  in  scope  of  operation,  and 
uniform  in  their  benefits  to  all  portions  of  the  nation. 

Japan  has  one  large  central  land-credit  institution,  and 
forty-sis  local  land-credit  institutions,  one  in  each  prefec- 


Multiplicity  of  Bond-Issuing  Banks     1215 

fure.  The  first  is  the  ISTippon  Kwango  Ginko  Bank,  and 
local  banks  are  the  forty-six  Noko  Ginko  banks.  "While  the 
local  banks  are  independent  of  the  central  bank,  yet  the 
central  bank  may  make  long-time  loans  to  the  local  banks 
and  guarantee  their  debentures. 

The  advantages  of  a  large  central  institution  are  illus- 
trated in  the  success  which  has  been  achieved  by  the  Prus- 
sian Central  Land  Credit  Joint-Stock  Company  of  Berlin, 
Germany.  The  history  of  this  institution  will  be  found  in 
Senate  Document  214,  Sixty-third  Congress,  pages  404-411, 
prepared  by  Herr  Wegener,  a  director.  This  company  was 
organized  in  Prussia  in  1870,  under  tlie  approval  of  the 
King  and  the  Prime  Minister,  von  Bismarck.  At  that 
time  the  Landschaften  had  been  in  operation  for  a  hun- 
dred years.  This  great  loan  company  is  located  at  Berlin. 
It  is  authorized  to  establish  branches,  but  has  never  done 
so.  In  conducting  its  business  it  employs  300  agencies. 
In  their  appointment  the  directors  and  the  President  must 
be  confirmed  by  the  King.  The  company  is  under  the 
supervision  of  the  government  but  has  never  received  any 
government  aid  in  either  credit  or  capital.  Originally  the 
institution  was  designed  to  accept  deposits  and  carry  on 
a  general  banking  business.  That  idea  was  dropped.  It 
became  purely  a  mortgage  bank.  "  All  speculative  busi- 
ness," says  Herr  Wegener,  "  is  prohibited."  Originally  the 
capital  stock  was  36,000,000  marks  or  about  $9,000,000. 
The  capital  has  been  increased  to  44,400,000  marks,  or 
about  $11,000,000.  The  total  reserve  funds  in  1913  were 
18,324,634  marks,  or  about  $4,581,158.  In  1912,  its  total 
loans  were  1,021,727,553  marks;  its  total  bonds  outstand- 
ing were  982,374,750  marks.  Expressed  in  dollars,  its  loans 
were  about  $255,431,888,  and  its  outstanding  bonds  were 
about  $245,593,000.  In  the  first  year  of  its  history,  it  paid 
a  7  per  cent,  dividend.  In  all  the  forty-two  years  following 
it  has  never  paid  a  dividend  on  its  stock  of  less  than  8% 
per  cent.     In  thirty-four  of  these  years  it  paid  a  dividend 


126  Land  Credits 

of  9  per  cent,  or  over.  The  cost  of  administration  in  1912 
was  1,315,949  marks,  or  about  $336,487.  Tliis  is  equiva- 
lent to  onh'  •'■%oo  of  1  psr  cent,  on  the  amount  of  the  out- 
standing loans.  This  is  a  matter  of  the  greatest  impor- 
tance. It  is  a  striking  example  of  economy  in  administra- 
tion of  a  large  concern.  Here  is  a  large,  dividend-paying, 
profit-sharing  institution  controlled  by  private  capital.  Its 
business  covers  all  Prussia.  Its  rate  of  interest,  says  Herr 
Wegener  (Sen.  Doc.  214,  63rd  Cong.,  page  406)  is  "de- 
pendent upon  the  rate  of  interest  which  the  bank  itself 
must  pay  for  the  mortgage  bond.  At  present  (1913)  the 
institution  is  working  on  the  ground  of  the  mortgage 
bonds  at  4  per  cent,  and  the  rate  of  interest  for  loans 
amounts  therefore  usually  to  4i/4  per  cent."  This  mort- 
gage institution  is  one  of  the  largest  in  Germany.  In 
the  amount  of  its  loans  only  three  Landschaften,  those 
of  Silesia,  East  Prussia  and  Posen,  exceed  it,  and  the 
Silesia  Landschaft  is  the  oldest  of  them  all,  having  been 
organized  in  IT 69.  Only  two  mortgage  banks  in  Ger- 
many surpass  it  in  amount  of  loans.  Its  interest  rates 
have  been  only  slightly  in  excess  of  the  Landschaften, 
it  has  accumulated  a  large  reserve  fund,  paid  an  average 
annual  dividend  on  its  capital  stock  of  over  9  per  cent., 
pays  administrative  charges,  but  its  rate  of  interest  is  only 
one-fourth  of  1  per  cent,  above  the  rate  of  interest  borne 
by  its  mortgage  bonds.  If  the  national  government  shall 
create  private  banking  institutions  to  operate  its  land-credit 
system,  it  is  essential  that  these  banks  shall  be  required  to 
conduct  their  business  economically.  If  the  Prussian 
Central  Land  Credit  Joint-Stock  Company  of  Berlin  can 
keep  its  administrative  charges  down  to  a  point  of  only 
■^%oo  of  1  per  cent,  on  its  total  loans,  and  charge  its  bor- 
rowers on  mortgages  only  one-fourth  of  1  per  cent,  above 
the  rate  of  interest  on  its  bonds  and  still  pay  liberal  divi- 
dends, and  accumulate  an  ample  reserve  fund,  there  can 
be  no  good  reason  why  land-mortgage  banks  in  the  L^nited 


Multiplicity  of  Bond-Issuing  Banks     127 

States  can  not  do  equally  as  well  with  American  farmers. 
It  is  apparent  that  no  small  mortgage  bank  could  operate 
so  economically.  This  institution  is  worthy  of  the  closest 
study.  It  is  not  an  experiment.  It  has  done  business 
forty-three  years.  There  has  been  a  continuous  and  sub- 
stantial growth  in  its  business.  Its  dividends  have  been  reg- 
ular and  liberal.  Its  reserve  fund  has  grown  constantly. 
Its  interest  rates  on  farm  loans  have  been  low  —  seldom 
above  4%  per  cent,  per  annum.  It  is  not  a  bank  in  reality, 
but  a  loan  company  —  merely  an  intermediary  instrument 
between  the  borrower  and  the  investor.  It  does  not  receive 
deposits.  It  engages  in  no  speculative  business.  And  if  we 
are  to  create  private  land-credit  institutions  to  supply 
American  agriculture  with  credit,  the  Prussian  Central 
Land  Credit  Joint-Stock  Company  is  a  model  from  which 
we  may  copy  much. 

Fifth.  Advantages  of  Centralization  in  the  Bond-Issu- 
ing Power, 

1.  Centralization  in  the  bond-issuing  power  ivill  insure 
a  lower  interest  rate  than  can  he  had  under  a  system  ivhich 
brings  into  existence  a  multiplicity  of  bond-issuing  institu- 
tions. The  reduction  of  the  interest  rate  on  farm  loans 
is  the  chief  object  of  land-credit  legislation.  To  give  the 
farmers  credit  at  a  low  rate  of  interest  is  the  one  great  end 
to  be  accomplished.  All  other  considerations  must  be  made 
incidental,  secondary,  and  subsidiary.  The  greatest  dan- 
ger is,  that  the  farmers'  securities  will  be  discredited  by  the 
institutions  which  offer  them  to  the  public.  The  land 
banks  will  be  the  agents  of  the  farmers.  The  farmers  will 
be  judged  by  the  character  of  their  agents.  The  land 
banks  will  be  the  financial  representatives  of  the  farmers. 
The  farmers  can  not  stand  better  in  the  financial  world 
than  their  duly  accredited  representatives.  The  banks  will 
be  spokesmen  for  the  farmers,  and  they  will  speak  through 
their  reputations.  To  have  a  multiplicity  of  agents,  means 
to  have  a  variety  of  agents  —  some  good,  some  bad.     The 


128  Land  Credits 

bad  will  injure  the  good.  The  rate  of  interest  the  farmers 
will  pay  depends  on  the  confidence  the  investing  public  has 
in  the  farm-mortgage  bonds.  Bonds  issued  by  a  multi- 
plicity of  banks  will  have  different  values.  Bonds  of  one 
institution  will  be  regarded  safer  than  others.  To  doubt 
the  safety  of  one  bond,  is  to  question  all  of  them.  A 
few  bad  citizens  will  destroy  the  good  name  of  a  whole 
community.  One  bank  failure  develops  mistrust  in  all 
banks.  So  one  bond-issuing  institution  of  doubtful  stand- 
ing will  discredit  all  of  them.  It  matters  not  how  remote 
the  institution  may  be.  Multiplicity  of  banks  means 
small  banks.  Many  banks  means  unknown  banks.  Small 
banks,  unknown  banks,  can  not  and  will  not  command  the 
confidence  of  investors.  Banks  will  not  confine  the  sale  of 
their  securities  to  the  localities  where  they  do  business. 
Their  bonds  will  be  scattered  far  and  wide.  Purchasers 
will  be  sought  everywhere.  Multiplicity  of  bond-issuing 
banks  will  create  confusion  in  the  minds  of  investors. 
This  very  confusion  will  lower  the  price  of  mortgage  bonds 
generally.  The  only  way  the  farmers  can  secure  the  low- 
est rate  of  interest  is  to  present  to  buyers  a  mortgage 
bond  that  is  absolutely  secure.  It  is  utterly  impossible  to 
do  this  where  these  bonds  are  issued  by  a  multiplicity  of 
mortgage  banks.  Many  bond-issuing  banks  mean  more  in- 
terest. The  farmers  of  the  United  States  should  under- 
stand this  proposition  and  act  accordingly.  They  should 
insist  that  their  securities  shall  not  be  impaired,  discredited, 
vitiated,  tainted  and  debased  by  a  multiplicity  of  bond- 
issuing  institutions.  The  farmers  have  the  best  securities 
in  the  world,  but  they  can  not  be  sold  at  the  highest  price 
and  to  the  best  advantage  unless  issued  and  sold  through 
an  institution  that  commands  the  implicit  confidence  of 
investors  throughout  the  nation. 

2.  Multiplicity  of  hond-issuing  hauls  means  non-uni- 
formity of  interest  rates.  Elsewhere  it  has  been  shown 
that  a  system  of  land  credit  should  be  adopted  that  will 


Multiplicity  of  Bond-Issuing  Banks     129 

secure  uniformity  of  interest  rates  throughout  the  Union. 
It  has  been  shown  that  variety  in  interest  rates  means 
higher  interest  —  not  simply  higher  interest  to  some  but 
higher  interest  to  all.  Because  through  a  great  central  in- 
stitution, representing  the  combined  credit  of  the  farmers 
of  the  United  States,  the  farmers  in  those  States  where 
the  lowest  rates  of  interest  prevail  would  secure  a  lower 
rate  of  interest  than  they  could  through  a  small  institution. 
It  is  true  that  the  interest  rates  on  farm  loans  in  some 
States  are  now  lower  than  in  others.  It  is  true  that  better 
credit  facilities  are  extended  to  the  farmers  of  some  of 
the  States  than  in  others.  It  is  true  that  in  some  States 
there  is  more  local  capital  for  investment  in  farm-mort- 
gages than  in  others.  But  let  not  the  farmers  of  these 
favored  States  be  deluded  with  the  idea  that  they  will  gain 
anything  through  the  small  bond-issuing  mortgage  banks. 
Under  such  a  system,  they  might  and  probably  would  do 
better  than  the  farmers  in  those  sections  where  local  capi- 
tal is  scarcer  and  interest  rates  higher.  They  will  not, 
however,  do  as  well  as  they  would  under  a  centralized 
system  of  bond-issuing  banks.  It  must  be  admitted  that 
the  farmers  of  the  South,  and  the  West  will  suffer  most 
from  a  multiplicity  of  bond-issuing  banks.  But  the  farm- 
ers of  no  State  will  suffer  from  the  centralization  of  the 
bond-issuing  power  in  our  land-credit  banks.  All  will  be 
benefited  thereby. 

3.  Multiplicity  of  bond-issuing  institutions  will  increase 
the  cost  of  supervision.  All  of  these  bills  propose  to  create 
a  Bureau  of  the  Federal  government  to  supervise,  direct 
and  control  the  land  banks  to  be  brought  into  existence. 
The  larger  the  number  of  banks,  the  greater  will  be  the 
number  of  employees  in  the  land-credit  bureau,  and  the 
higher  will  be  the  cost  of  supervision.  The  fewer  the 
banks  we  have,  the  less  will  be  the  cost  to  supervise  them. 
This  applies  to  the  entire  system  of  banks  to  be  brought 
into  existence.     This  is  one  objection  to  all  these  bills. 


130  Land  Credits 

The  Sub-committee  Bill  and  the  Senate  Committee  bills 
provide  for  local  banks  with  a  minimum  capital  of  $10,000. 
There  are  about  3,000  counties  in  the  United  States. 
There  may  not  be  a  local  bank  in  each  county.  But  these 
local  banks  will  be  numerous.  It  will  require  many  men 
to  supervise  them.  This  expense  will  come  out  of  the 
National  Treasury.  These  banks  will  increase  in  num- 
ber. This  business  will  grow.  So  as  the  years  go  by  the 
cost  of  supervision  to  the  Federal  government  will  in- 
crease. If  money  is  to  be  taken  from  the  National  Treas- 
iiry  to  promote  rural  credits,  it  should  be  used  in  a  way 
that  will  aid  the  farmers  the  most,  and  not  in  the  super- 
vision of  thousands  of  small  banks,  when  the  utility  of 
these  banks  is  doubtful. 

4.  Only  through  centralization  of  the  hond-issuing 
power  ivill  the  farmers  of  the  United  States  secure  access 
to  the  capital  of  foreign  nations.  European  investors 
have  invested  largely  in  our  railway,  industrial  and  mu- 
nicipal securities.  They  will  purchase  farm-mortgage 
bonds,  if  they  shall  be  issued  by  the  right  kind  of  institu- 
tions. The}'  will  not  purchase  these  bonds  if  they  shall 
be  issued  by  numerous  small  institutions.  Why  should  we 
thus  voluntarily  restrict  the  market  for  our  farm-mortgage 
bonds?  The  sale  of  the  mortgage  bonds  is  the  diificult 
task  to  perform.  The  marketing  of  the  farm-mortgage 
securities  is  the  one  great  work  of  our  land-credit  institu- 
tions. The  success  of  our  undertaking  should  not  be  en- 
dangered by  multiplying  the  number  of  our  bond-issuing 
institutions  and  thereby  precluding  our  farmers  from  se- 
curing credit  abroad. 

5.  Bonds  issued  on  mortgages  covering  lands  within  a 
small  area  are  less  secure  than  bonds  based  upon  mort- 
gages upon  land  covering  large  area.  The  small  bank  con- 
fines its  loans  to  a  limited  area.  Its  business  will  be  re- 
stricted within  a  single  State,  and  in  many  cases,  within 
a  section  of  a  State.     The  bonds  issued  by  these  banks 


Multiplicity  of  Bond-Issuing  Banks     131 

are  secured  by  mortgages  on  these  lands  only.  Failure  of 
crops  through  drouths,  floods,  extremes  of  cold  or  heat,  and 
losses  from  insects,  diseases  of  plants  and  animals,  fre- 
quently seriously  affect  a  State  or  locality,  but  do  not  ma- 
terially affect  the  agricultural  prosperity  at  large.  Crop 
failures  generally  throughout  the  United  States  have  never 
been  known.  But  failures  over  a  limited  area  occur  fre- 
quently. The  general  average  of  production  may  be  good, 
when  a  particular  State  or  section  has  had  a  crop  failure. 
In  such  case,  the  small  bond-issuing  institution  is  put  to 
a  severe  test.  All  of  its  borrowers  have  suffered  alike. 
They  have  all  met  severe  losses.  Defaults  in  the  payment 
of  principal  and  interest  due,  would  be  general.  Local 
disasters  would  not  seriously  affect  an  institution  with 
mortgages  from  every  State  in  the  Union.  The  small 
bond-issuing  institution  can  not  distribute  its  risks.  The 
central  institution  distributes  its  risks  over  the  entire  coun- 
try. It  is  backed  by  the  agricultural  resources  of  the  na- 
tion and  hence  is  as  sound,  as  safe,  and  enduring  as  the 
nation  itself. 

6.  Multiplicity  of  bond-issuing  institutions  puts  farm- 
ers in  competition  in  the  sale  of  their  securities.  The 
farmers  must  buy  credit.  In  buying  credit  they  sell  their 
mortgage  bonds.  Wlien  these  bonds  are  placed  on  the  mar- 
ket by  many  institutions,  the  farmers  are  competing  with 
each  other.  Competition  in  the  sale  of  bonds  acts  just  as 
it  does  in  anything  else.  The  effect  is,  to  reduce  the  price 
of  the  bond.  That  is  to  say,  the  bond  sells  below  par. 
That  the  farmers  may  have  cheap  credit,  mortgage  bonds, 
bearing  a  low  rate  of  interest,  must  sell  at  or  near  par. 
When  numerous  institutions  are  selling  bonds  on  the 
same  market,  the  tendency  will  be  to  increase  the  rate 
of  interest  thereon.  But  increased  interest  on  the  mort- 
gage bonds  means  higher  interest  on  the  farm  mortgage. 
This  works  to  the  advantage  of  the  investor,  the  money 
lender,  and  to  the  disadvantage  of  the  farmer,  the  bor- 


132  Land  Credits 

rower.     The  investor  can  choose  between  bond-issuing  in- 
stitutions.    He  can  buy  the  bond  that  bears  the  highest 
rate  of  interest,  or  that  sells  at  the  greatest  discount.     He 
naturally  deals  with  the  institution  offering  the  best  terms, 
the  greatest  bargain.     It  must  be  borne  in  mind  that  with 
many  banks  issuing  bonds,  while  restricted  in  the  area  in 
which  they  make  loans,  they  may  sell  their  bonds  any- 
where and  everywhere.     They  will  not  compete  in  making 
loans  to  the  farmers  —  in  offering  the  farmers  better  terms 
and  lower  interest,  they  will  compete  in  dealing  with  in- 
vestors —  in  oft'ering  them  the  best  security  possible,  on 
the  best  terms.     The  multiplicity  in  bond-issuing  institu- 
tions gives  the  farmer  no  competition  in  the  terms  of 
his  mortgage,  in  the  amount  of  his  loan  or  in  the  rate 
of  interest.     He  must  deal  with  one  institution  on  the 
terms   offered  by  that   institution,  but  the  investor,  the 
money  lender,  may  buy  bonds  from  a  hundred  institutions. 
He   has   the   benefit    of    competition.     If   farm-mortgage 
bonds  were  issued  by  only  one  institution,  the  farmers 
would  not  be  compelled  to  compete  with  each  other  in  sell- 
ing their  securities.     The  farmers  of  the  West  would  not 
compete  with  those  of  the  East;  the  farmers  of  the  South 
would  not  compete  with  those  of  the  Korth.     One  section 
of  the  country  would  not  compete  with  another.     It  may 
be  said  that  competition  is  the  rule  of  business,  and  that 
farmers  should  not  object  to  this.     But  the  farmers  would 
still  have  competition,  because  their  securities,  the  farm- 
mortgage  bonds,  must  compete  in  the  money  markets  with 
all  other  kinds  of  securities.     Farm-mortgage  bonds  will 
be  a  new  thing  in  the  United  States.     They  must  make 
their  way  in  the  money  markets  of  the  country.     They 
must  seek  and  win  the  confidence  of  investors  —  large  and 
small.     They  must  sell  in  competition  with  the  bonds  of 
the  Federal,  State  and  local  governments,  with  the  bonds 
of  all  kinds  of  public  utility  corporations,  with  the  bonds 
of  steam  and  electric  railways,  and  with  the  securities  is- 


Multiplicity  of  Bond-Issuing  Banks     133 

sued  by  all  kinds  of  manufacturing,  mercantile,  commercial 
and  industrial  corporations.  The  farmers  will  have  enough 
to  do  to  make  their  way  against  these  mighty  forces, 
which  now  largely  monopolize  the  credit  resources  of  the 
country.  What  chance  will  the  farmers  have  to  secure  and 
hold  their  legitimate  share  of  credit,  if  their  securities  are 
placed  upon  the  market  by  numerous  small  institutions? 
Let  not  the  farmers  underestimate  the  task  before  them. 
The  great  commercial  forces  of  the  country  will  not  will- 
ingly relinquish  their  hold  upon  the  purse-strings  of  the 
investing  public.  All  along  the  line  there  is  a  demand  for 
more  credit.  The  business  of  the  country  is  growing. 
Commerce  is  constantly  expanding.  Our  transportation 
companies  are  seeking  additional  capital.  The  great  in- 
dustrial corporations  need  more  credit.  Our  great  mer- 
cantile houses  are  offering  their  notes  to  banks  and  in- 
vestors wherever  idle  funds  can  be  found.  Greater  capital, 
larger  credit,  more  money  is  the  universal  cry,  coming 
from  every  line  of  industry  and  enterprise.  The  farm- 
ers will  have  competition.  Agriculture  will  not  command 
adequate  credit  without  a  fierce  struggle.  Agriculture 
should  not  compete  against  itself.  Farmers  in  securing 
credit  should  not  compete  against  farmers.  The  only  way 
to  avoid  this  is  to  present  their  securities  through  a  single 
institution.  In  this  way,  the  farm-mortgage  bonds  will 
be  nationalized.  They  will  go  to  investors,  with  the  united 
support  of  all  our  farmers,  sustained  and  secured  by  the 
strength  and  wealth  of  our  greatest  industry.  In  this  way 
farmers  will  not  compete  with  each  other  for  credit,  but 
they  will  be  able  to  compete  successfully  with  other  indus- 
tries and  interests  for  credit,  among  investors  of  all  kinds 
in  every  part  and  portion  of  the  land. 

7.  Only  through  centralization  can  there  he  standardiza- 
tion of  business  methods,  mortgages,  bonds  and  appraise- 
ments. With  many  independent  institutions  making  loans 
in  many  different  localities,  there  must  be  vast  variety  and 


134  Land  Credits 

variance  in  their  business  methods.  The  law  may  limit 
their  loans  to  one-half  the  value  of  land  mortgaged.  But 
this  will  mean  nothing  unless  appraisements  are  made  upon 
the  same  basis.  There  can  be  no  standardization  of  ap- 
praisements when  numerous  independent  institutions  are 
making  appraisements  for  their  own  loans.  It  is  asserted 
that  local  banks  are  acquainted  with  land  values  in  the 
country  surrounding  them  and  are  therefore  better  quali- 
fied to  make  appraisements  of  such  lands.  There  is,  how- 
ever, danger  along  this  line.  Local  bankers,  like  others, 
are  liable  to  have  an  exaggerated  idea  of  the  value  of  lands 
in  the  locality  in  which  they  do  business.  They  are  also 
liable  to  be  influenced  by  close  personal  relation  to  the  bor- 
rowers. Sometimes  the  local  bank  or  some  one  connected 
with  it,  will  be  financially  aided  by  the  borrower  obtaining 
a  long-time  loan.  There  may  be  many  local  conditions 
which  will  influence  the  judgment  of  the  local  appraisers. 
The  most  reliable  appraisements  will  come  through  ap- 
praisers wholly  free  from  local  connections.  Expert  ap- 
praisers, sent  out  by  a  central  institution,  with  a  knowledge 
of  land  values  throughout  the  country  generally,  will  prove 
safer  and  more  satisfactory  than  local  appraisers.  At 
least,  appraisements  made  solely  through  local  independent 
banks  or  their  agents,  will  follow  no  fixed  standard.  The 
safety  of  the  mortgage  bonds  rests  largely  upon  the  trust- 
worthiness of  the  appraisement.  Without  standardization 
in  the  appraisement,  the  security  behind  the  bonds  of  the 
various  institutions  will  vary.  The  investing  public  will 
have  full  knowledge  of  these  facts.  Lack  of  standardiza- 
tion in  business  methods,  in  valuation  of  mortgaged  lands, 
and  variance  in  the  security  behind  the  bonds  of  various 
institutions  will  discredit  farm-mortgage  securities  among 
investors.  With  numerous  banks  issuing  bond's,  neces- 
sarily there  will  be  variety  in  the  actual  value  of  these 
bonds.  Some  banks  will  be  safer  than  others.  This  will 
mean  that  the  bonds  of  some  institutions  will  be  under 


Multiplicity  of  Bond-Issuing  Banks     135 

suspicion.  Under  the  Commission  Bill,  the  minimum 
capital  of  the  banks  is  fixed  at  $100,000.  But  there  is  no 
other  restriction.  Should  this  bill  become  a  law,  there 
might  be  one  bank  with  $100,000,  another  with  $500,000, 
and  another  with  $1,000,000,  and  still  another  with 
$10,000,000,  and  so  on  up.  The  Sub-committee  Bill 
authorizes  the  organization  of  twelve  district  banks,  each 
with  a  minimum  capital  of  $500,000.  No  maximum  in 
capital  is  fixed.  Under  this  bill  there  might  be  one  bond- 
issuing  bank  with  $500,000  capital,  and  another  with 
$5,000,000,  or  $50,000,000.  Under  the  Senate  Committee 
Bill,  there  would  be  still  greater  variance  and  variety  in 
the  amount  of  capital  stock  of  the  bond-issuing  banks. 
For  under  this  bill,  two  classes  of  bond-issuing  banks  are 
authorized.  See  where  all  this  leads  to?  Utter  confu- 
sion, and  bewilderment.  With  farm-mortgage  bonds  of- 
fered to  investors  from  all  kinds  of  banks,  it  is  inevitable 
that  the  bonds  issued  by  the  large  banks  will  have  a  pres- 
tige over  the  bonds  issued  by  the  small  banks.  To  say 
that  one  farm-mortgage  bond  is  safer  than  another  is  to 
question  the  safety  of  all  of  them.  To  doubt  one,  is  to 
doubt  all.  This  means  that  multiplicity  of  bond-issuing 
banks  with  no  uniformity  in  capital  stock,  wUl  weaken  the 
whole  fabric  of  our  land-credit  system,  and  to  a  degree 
destroy  the  confidence  of  the  public  in  the  farmers'  se- 
curity, which  must  result  in  limiting  credit  and  increasing 
interest.  There  is  another  feature  along  this  same  line 
that  should  be  mentioned.  Under  these  "officially  en- 
dorsed "  bills,  the  banks  are  required  to  set  aside  certain 
surplus  or  reserve  funds.  They  are  not  required  to  follow 
a  fixed  standard  as  to  the  amount  of  surplus  or  reserve 
fund.  That  is  to  say,  should  any  one  of  these  bills  be- 
come a  law,  the  amount  of  surplus  or  reserve  fund  in  the 
bond-issuing  banks  would  vary  greatly.  One  bank  might 
have  a  much  larger  surplus  or  reserve  fund  in  proportion 
to  its  capital  than  another.     The  surplus  or  reserve  fund 


136  Land  Credits 

in  a  bond-issuing  bank  is  an  insurance  or  guaranty  fund  — 
lield  by  the  bank  to  meet  any  and  all  losses  which  may 
come.  If  bond-issuing  banks  vary  in  the  amount  of  their 
guaranty  funds,  they  will  vary  in  the  security  they  offer 
investors.  This  means  there  will  be  an  actual  difference  in 
the  value  of  their  bonds.  Investors  must,  therefore,  first 
look  at  the  capital  of  the  bank  issuing  the  bond,  and 
then  they  should  ascertain  what  surplus  or  reserve  fund  the 
bank  has  to  meet  unexpected  losses.  There  is  the  human 
element  in  all  these  numerous  bond-issuing  banks.  If 
many  banks  issue  farm-mortgage  bonds,  it  means  great 
variety  in  the  management  of  these  banks.  Skill  in  man- 
agement, honesty  in  administration,  appreciation  of  re- 
sponsibility to  investors,  the  recognition  of  duties  to  the 
public  on  the  part  of  owners  and  managers,  will  have 
much  to  do  with  the  safety  of  securities  issued  by  bond- 
issuing  banks.  The  larger  the  number  of  bond-issuing 
banks  we  have,  the  greater  will  be  the  variety  in  the  char- 
acter of  their  owners  and  managers. 

Again,  with  a  multiplicity  of  bond-issuing  banks  there 
is  a  lack  of  standardization  in  the  character  of  the  lands 
mortgaged.  The  bonds  of  one  bank  are  secured  by  East- 
ern lands,  another  by  "Western  lands,  another  by  Southern 
lands,  and  still  another  by  Xorthern  lands.  The  securi- 
ties held  as  collateral  for  the  bonds  of  these  banks  will 
be  covered  by  mortgages  upon  a  vast  variety  of  lands  — 
corn  lands,  wheat  lands,  cotton  lands,  fruit  lands,  grazing 
lands,  and  so  on.  This  presents  another  problem  for  the 
solution  of  investors.  "What  lands  —  judged  by  their  chief 
product  —  are  the  safest  security.  One  investor  would  put 
his  money  upon  the  corn-belt,  another  upon  the  wheat- 
fields,  and  still  another  would  choose  the  lands  in  the  do- 
main where  cotton  is  king.  Here  again  is  confusion  for 
investors  in  farm-mortgage  securities.  All  this  non-con- 
formity, and  variety  must  create  doubt,  perplexity,  and 
mistrust.     The  whole  thing  becomes  a  confused  mixture. 


Multiplicity  of  Bond-Issuing  Banks     137 

an  incompreliensible  jumble  and  conglomeration.  In  the 
multiplicity  of  bond-issuing  land  banks  all  this  is  inevi- 
table. Through  one  great  bond-issuing  bank  all  thi?;  will 
be  avoided.  Business  methods  will  be  standardi2ed. 
There  will  be  order,  regularity,  and  uniformity  in  ap- 
praisements. There  will  be  no  question  in  the  minds  of 
investors  about  the  capital,  the  surplus,  the  reserve,  or  the 
management  of  the  bond-issuing  bank.  There  will  be  no 
confusion  about  the  location  of  lands,  or  the  character  of 
their  products.  There  will  be  standardization,  order, 
regularity,  nmformity,  system,  solidarity  and  unity. 
These  will  mean  strength,  stability,  prestige,  power,  in- 
fluence and  success. 

8.  Land-mortgage  hands  should  he  issued  hy  institu- 
tions of  sucli  financial  strength  as  will  command  the  con- 
fid-ence  of  the  investing  public.  This  is  more  important 
here  than  in  European  countries.  We  have  a  vast  area  of 
country.  European  countries  have  small  area.  Our 
coimtry  is  comparatively  sparsely  settled.  European 
countries  are  thickly  settled.  Germany,  composed  of  some 
twenty-six  States  or  Provinces,  with  nearly  70,000,000 
population,  has  less  area  than  the  State  of  Texas.  Land 
bonds  issued  by  Landschaften  and  other  land-credit  insti- 
tutions of  Germany,  usually  find  a  market  in  the  very  com- 
munity in  which  the  land  is  situated.  Xot  so  in  this  coun- 
try. By  far  the  greater  part  of  the  bonds  issued  by  the 
land  banks  must  be  sold  to  investors  residing  one,  two, 
or  three  thousand  miles  distant,  who  know  little  of  the 
bank,  the  products  of  the  coimtry,  or  the  character  of  the 
people.  Very  naturally  men  will  hesitate  to  risk  their  sav- 
ings in  banks  of  this  kind.  But  a  single  great  bank  would 
command  the  confidence  of  investors.  It  would  quickly  at- 
tain a  national  standing  and  its  name  would  become  fa- 
miliar throughout  the  country.  Land  securities  issued  by 
such  a  bank  would  sell  more  readily  and  at  a  lower  rate  of 
interest  than  securities  b}^  numerous  small  banks,  about 


138  Land  Credits 

which  the  public  generally  could  have  but  little  knowledge. 
France,  in  enacting  a  law  to  establish  her  land-credit 
system,  started  with  the  idea  of  having  many  land  banks 
with  authority  to  issue  bonds.  After  a  brief  trial  she 
abandoned  the  idea.  The  smaller  banks  were  purchased  by 
the  one  great  land-credit  institution,  the  Credit  Foncier. 

Emperor  ISTapoleon  III  promulgated  a  decree  which  ex- 
tended the  powers  of  the  Land  Bank  of  Paris,  conferred 
upon  it  the  title  La  Societe  du  Credit  Foncier  de  France, 
and  "  authorized  it  to  absorb  the  other  companies  which 
had  been  formed." 

The  farmers  of  the  United  States  will  make  a  fatal  mis- 
take if  they  are  led  to  sanction  a  land-credit  system  that 
is  based  upon  the  credit  and  standing  of  small  banks  scat- 
tered throughout  the  vast  territory  of  the  United  States. 
To  have  many  banks  issuing  land-mortgage  bonds,  will 
cost  the  farmers  millions  of  dollars  every  year  in  higlier 
rates  of  interest. 

All  experience  demonstrates  that  in  every  line  and  char- 
acter of  business  conducted  by  governments,  corporations, 
associations,  partnerships  or  individuals  the  strong  gov- 
ernment, the  large  concern,  the  big  institution,  the  wealthy 
individual,  can  always  borrow  money  upon  the  best  terms 
and  at  the  lowest  rate  of  interest.  The  United  States  can 
borrow  money  cheaper  than  it  can  be  borrowed  by  the 
small  Republics  of  Central  and  South  America,  The 
Standard  Oil  Company  and  the  United  States  Steel  Com- 
pany have  better  credit  than  their  small  independent  com- 
petitors. The  Wanamaker  and  Marshall  Field  depart- 
ment stores  can  command  money  at  a  lower  rate  of  in- 
terest than  the  small  concerns  located  in  obscure  streets  in 
Philadelphia  or  Chicago.  All  of  which  illustrates  the 
strength  of  credit  that  comes  from  centralization  and  unity. 


CHAPTER  XI 

INTEREST 

The  subject  of  interest  will  be  considered  under  the  fol- 
lowing heads : 

1.  General  Statement. 

2.  Provisions  in  the  Three  Officially  Endorsed  Bills 

relative  to  Interest  Eates. 

3.  Interest  Piates  in  other  Countries. 

4.  Interest  Eates  on  Bonds. 

5.  Diversity  of  Interest  Eates. 

1.  General  Statement.  The  chief  end  to  be  attained  in 
the  organization  of  land  credits  is  a  reduction  in  existing 
interest  rates.  All  of  our  efforts  will  be  largely  in  vain 
unless  the  main  purpose  of  land-credit  legislation  shall  be 
accomplished.  Too  much  care  can  not,  therefore,  be  exer- 
cised in  constructing  our  land-credit  institutions  with  a 
view  to  giving  agriculture  not  only  ample  credit,  but  such 
credit  at  the  very  lowest  rate  of  interest  possible.  It 
would  not  be  true  to  say  that  the  "Three  Officially  En- 
dorsed Bills  "  contain  no  provisions  which  would  tend  to 
reduce  the  rate  of  interest  on  farm-mortgage  loans.  Every 
one  of  these  bills  contains  a  provision  which,  if  enacted 
into  law,  would  effect  a  material  reduction  in  interest 
rates  on  farm  loans.  The  provision  referred  to  is  the  one 
that  exempts  farm  mortgages,  farm-mortgage  bonds,  and 
the  income  therefrom  from  all  national,  State  and  local 
taxation.  Aside  from  this  provision,  these  bills  give  little 
promise  of  any  material  reduction  in  the  prevailing  rates 
of  interest  on  farm-mortgage  loans.     The  Federal  govern- 

139 


140  Land  Credits 

ment,  through  the  actions  of  the  Commission  and  the  Com- 
mittees of  Congress,  has  thus  gone  far  along  the  way  to- 
ward creating  a  system  of  land  credit  that  does  not  insure 
a  low  rate  of  interest  on  farm-mortgage  loans.  To-day 
danger  hangs  over  agriculture.  Misfortune  threatens  our 
farmers.  Their  interests  are  in  jeopardy.  Their  welfare 
is  in  peril.  Through  unwise  legislation  our  farmers  are 
about  to  lose  benefits  and  advantages  to  which  they  are 
clearly  entitled.  In  this  crisis,  the  provisions  of  these 
bills  which  relate  to  or  in  any  way  affect  the  rate  of  inter- 
est, should  be  placed  under  the  closest  scrutiny.  Every 
provision  in  these  bills  which  is  unfavorable  to  a  low  rate  of 
interest  should  be  abandoned.  There  is  entirely  too  much 
at  stake  and  the  interests  involved  are  too  momentous  and 
far-reaching  to  crystallize  into  law  any  land-credit  bill 
which  will  not  insure  the  farmers  of  the  United  States 
ample  credit  at  the  very  lowest  rate  of  interest. 

2.  Provisions  Relating  to  Interest.  The  Commission 
Bill  by  no  specific  pro\'ision  attempts  to  control  the  rate 
of  interest  on  farm-mortgage  loans.  It  authorizes  no  gov- 
ernmental power  to  fix  or  regulate  the  rate  of  interest  the 
proposed  land  banks  shall  charge  borrowers.  The  only 
provision  which  in  any  way  relates  to  the  interest  charge 
is  found  in  Section  IG,  which  is  as  follows : 

"  That  the  rate  of  interest  upon  the  farm-land  loans 
evidenced  by  the  mortgages  or  deeds  of  trust  held  by  the 
bank  as  security  for  its  own  national  land-bank  bonds  shall 
not  exceed  the  rate  of  interest  paid  on  such  national  land- 
bank  bonds  by  more  than  1  per  cent,  annually  upon  the 
amount  unpaid  on  the  loan,  which  said  1  per  cent,  shall 
cover  all  charges  of  administration." 

The  provisions  in  the  Sub-committee  Bill  relating  to  the 
interest  charge  are  found  in  Sections  8  and  10.  The  fifth 
subdivision  of  Section  8  is  as  follows: 

"  The  rate  of  interest  charged  for  such  loans  shall  not 
exceed  the  legal  rate  current  in  the  State  in  which  the  farm 
land  securing  such  loan  is  situated." 


Interest  141 

The  provision  in  Section  10  declares  that  the  Federal 
Reserve  Board,  shall  have  power: 

"  To  review  and  alter  at  its  discretion  the  rate  of  in- 
terest to  be  charged  by  national  farm-loan  associations  for 
loans  made  by  them  under  the  provisions  of  this  Act,  said 
rates  to  be  as  nearly  uniform  throughout  each  State  as  the 
conditions  of  business  will  permit." 

The  provisions  in  the  Senate  Committee  Bill  which  re- 
late to  the  interest  charge  are  found  in  Sections  8,  10,  and 
25.     The  provision  in  Section  8  is  as  follows: 

"  The  rate  of  interest  charged  for  such  loans  shall  not 
exceed  the  legal  rate  current  in  the  State  in  which  the 
farm  land  securing  such  loan  is  situated." 

The  provision  in  Section  10,  says  that  the  Federal 
Farm-Loan  Board  shall  have  power : 

"  To  review  and  alter  at  its  discretion  the  rate  of  inter- 
est to  be  charged  by  farm-loan  associations  for  loans  made 
by  them  under  the  provisions  of  this  Act,  said  rates  to  be 
uniform  so  far  as  practicable." 

The  provisions  in  Section  25,  in  part,  are  as  follows: 

"  That  so  far  as  practicable  the  rate  of  interest  on  loans 
secured  by  first  mortgages  under  this  Act  shall  be  uniform, 
as  provided  in  Section  10,  and  the  farm-loan  commissioner 
shall  from  time  to  time  establish  a  specific  rate  of  interest 
to  be  charged  on  all  first  mortgage  loans  in  each  land-bank 
district.  The  normal  rate  of  interest,  not  including 
therein  any  amortization  payment,  on  first  mortgage  loans 
shall  be  established  by  adding  1  per  cent,  to  the  rate  of 
interest  specified  in  the  latest  issue  of  farm-loan  bonds  in 
said  district.  Wlienever,  because  of  local  or  other  condi- 
tions, it  shall  be  deemed  wise  by  said  farm-loan  commis- 
sioner, in  order  to  provide  a  special  reserve  against  losses, 
to  establish  a  specific  fate  of  interest  in  excess  of  said  nor- 
mal rate,  the  amount  of  interest  thereafter  paid  by  any 
borrower  in  excess  of  the  amount  which  he  would  have  been 
required  to  pay  if  his  loan  had  been  made  at  the  normal 


142  Land  Credits 

rate  of  interest  current  when  said  loan  was  made  shall  be 
carried  to  a  special  reserve  fund,  which  shall  be  specifically 
set  apart  by  the  association  or  the  land  bank  then  holding 
said  loan  for  the  purpose  of  meeting  any  losses  incurred  in 
the  State  where  the  land  mortgaged  to  secure  such  loan  is 
located." 

These  bills  propose  to  confer  upon  capital  invested  in 
these  land  banks  very  important  privileges.  The  Govern- 
ment proposes  to  supervise  the  business.  All  this  will  be 
done  at  the  expense  of  the  Government,  requiring  annually 
an  ever-increasing  outlay  of  money.  Under  the  Commis- 
sion Bill  the  Government  would  furnish  none  of  the  capital 
for  these  banks.  But  under  certain  conditions  the  Gov- 
ernment may  become  the  owner  of  some  of  the  bank  stock 
under  the  Sub-committee  Bill  and  the  Senate  Committee 
Bill.  Under  the  provisions  of  the  Senate  Committee  Bill, 
the  Government  may  derive  a  profit  from  the  business  of 
these  banks.  The  banks  under  the  Commission  Bill  are  to 
have  a  monopoly  of  the  name  "  national."  Wliile  it  is  as- 
sumed that  the  organization  of  these  banks  will  be  the  re- 
sult of  private  initiation,  that  the  money  necessary  for  their 
operation  will  be  contributed  by  private  capital,  and  that 
their  management  will  be  controlled  by  private  citizens, 
still,  in  an  important  sense,  these  proposed  land  banks  are 
institutions  of  the  national  government  and  will  be  so 
regarded  by  the  public.  Wliy  would  not  the  Government 
be  justified  in  declaring  by  statute  that  the  rate  of  interest 
shall  not  exceed  a  certain  amount?  If  it  is  the  intention 
of  the  Federal  government  to  establish  a  system  of  land 
credits,  which  will  materially  reduce  the  rate  of  interest 
now  prevailing,  why  not  at  least  establish  a  maximum  rate 
of  interest,  and  prohibit  the  charging  of  higher  rates. 
This  would  be  one  way  of  guarding  against  excessive  in- 
terest charges.  The  Sub-committee  Bill  gives  the  Fed- 
eral Eeserve  Board  the  power  to  ''  review  and  alter  "  the 
interest  rate  charged  by  farm-loan  associations.     The  Sen- 


Interest  143 

ate  Committee  Bill  gives  the  same  pov/er  to  the  Federal 
Farm  Loan  Board.  Congress  might,  however,  fix  a  maxi- 
mum rate  of  interest  and  confer  upon  the  supervisory 
authority  the  power  to  review  and  alter  interest  rates,  sub- 
ject to  the  statutory  provision.  The  regulation  of  interest 
rates  is  a  power  that  has  always  been  exercised  by  the 
State  governments.  But  if  the  national  government  shall 
bring  into  existence  special  land-credit  institutions,  to  l)e 
instrumentalities  of  the  Federal  government,  the  chief  ob- 
ject of  which  is  to  reduce  interest  charges  to  farmers,  why 
should  not  Congress  in  creating  these  institutions  say  that 
they  shall  not  charge  to  exceed  a  certain  rate  of  interest? 
The  prevailing  rate  of  interest  on  farm  loans  in  this  coun- 
try is  well  known.  The  usual  rate  of  interest  charged  on 
farm  mortgages  by  European  institutions  can  be  ascer- 
tained. Legislators  know  about  what  rate  of  interest  our 
new  land-credit  institutions  must  charge  to  meet  the  ex- 
pectations of  the  public.  Why  then  should  these  private 
banking  corporations  be  brought  into  existence  and  given 
full  control  of  our  land-credit  institutions,  without  any 
declaration  by  Congress  as  to  interest  rates  —  a  matter  of 
such  vital  and  supreme  importance  to  the  farmers  of  the 
country  ? 

Under  the  Commission  Bill,  as  shown  by  the  paragraph 
quoted  above,  the  rate  of  interest  on  mortgages  must  not 
exceed  by  more  than  1  per  cent,  annually  the  rate  of  in- 
terest on  the  bonds.  This  is  the  only  provision  in  this  bill 
which  in  any  way  limits,  restricts,  or  controls  the  rate  of 
interest  on  loans.  Whatever  may  be  the  purpose  of  this 
provision,  its  utility  or  effectiveness  as  a  means  or  method 
of  securing  a  low  rate  of  interest  is  very  doubtful.  The 
general  effect  of  this  provision  will  be,  to  raise  the  rate  of 
interest  on  the  mortgage  bonds  rather  than  to  reduce  the 
rate  of  interest  on  loans.  The  only  requirement  the  law 
makes  of  the  proposed  banks  is  that  there  shall  not  be 
more  than  1  per  cent,  difference  between  the  rate  of  in- 


144  Land  Credits 

terest  on  bonds  and  the  interest  charge  on  loans.  This  re- 
quirement can  be  fulfilled,  by  maintaining  a  high  interest 
rate  on  both  bonds  and  mortgages.  The  statute  only  de- 
mands of  the  banks  that  they  shall  maintain  a  certain 
ratio  between  the  interest  rate  on  bonds  and  the  interest 
rates  on  mortgages.  Now,  these  proposed  national  land 
banks  are  not  to  be  public  institutions,  with  a  benevolent 
or  charitable  object.  It  must  be  assumed  that  they  will 
act  from  selfish  motives,  as  do  other  private  business  con- 
cerns. Self-interest  will  be  first.  When  the  interests  of 
the  banks  are  not  at  stake  they  will  naturally  move  along 
the  line  of  least  resistance.  It  must  also  be  remembered 
that  in  the  organization  and  administration  of  any  sys- 
tem of  land  credit,  two  important  classes  of  persons  must 
be  dealt  with.  These  are  the  farmers  who  borrow,  and 
the  investors  who  purchase  the  farm-mortgage  securities. 
Their  interests  are  not  identical.  Investors  desire  as  high 
a  rate  of  interest  as  can  be  secured  on  safe  security.  The 
interest  on  the  bonds  held  by  the  investors  will  be  paid  by 
the  farmers.  It  is  to  the  farmers'  advantage  that  the  in- 
terest rate  on  the  bond  be  as  low  as  possible.  The  pro- 
posed land  banks  will  stand  as  arbiters  between  the  in- 
vestors and  farmers.  When  their  own  interests  are  in- 
volved, both  investors'  and  farmers'  will  be  ignored.  As 
between  them,  the  banks  will  naturally  go  where  their  own 
interests  lead  them.  This  is  human  nature.  We  can  not 
expect  our  rural-credit  legislation  to  change  human  na- 
ture. If  the  new  system  of  land  credit  shall  materially 
lower  the  rate  of  interest,  the  banks  will  have  no  difficulty 
in  securing  loans.  No  one  anticipates  that  there  will  be  a 
dearth  of  applications  for  farm  loans.  The  hard  problem 
that  will  confront  the  banks  will  be  the  sale  of  their  bonds. 
There  are  several  reasons  why  this  will  be  true.  Existing 
capital  is  already  largely  invested.  There  will  be  otlier 
demands  for  capital.  Our  great  transportation  companies 
are  demanding  more  capital.     The  industrial  and  commer- 


Interest  I4t; 

cial  enterprises  of  all  kinds  will  have  their  securities  on 
the  market.  The  credit  of  our  banks,  as  has  been  shown 
elsewhere,  is  very  largely  invested  in  commercial  and  in- 
dustrial enterprises  and  in  mortgages  upon  urban  property 
—  rather  than  upon  farms.  Investors  are  not  familiar 
with  agricultural  securities.  Our  banking  institutions 
have  not  been  accustomed  to  aid  in  their  distribution  and 
sale.  Besides,  under  the  proposed  system  of  land  banks, 
these  banks  will  be  in  competition  with  each  other  in  the 
sale  of  their  bonds.  Under  the  Sub-committee  Bill  there 
will  be  twelve  of  these  mortgage-bond-issuing  banks,  offer- 
ing their  bonds  in  the  same  market.  Under  the  Commis- 
sion Bill,  or  under  the  Senate  Committee  Bill,  there  may 
be  any  number  of  these  banks  competing  in  the  sale  of  their 
bonds.  In  this  situation,  with  competition  in  the  money 
market  on  every  hand,  the  proposed  land  banks  would  have 
no  selfish  interest  in  establishing  and  maintaining  a  low 
rate  of  interest  on  mortgage  loans.  The  selfish  interests 
of  the  bank  would  be  just  the  reverse.  The  banks  are  to 
be  allowed  a  margin  of  1  per  cent,  between  the  interest 
rate  on  the  bond  and  the  interest  rate  on  the  mortgage. 
The  bond  with  a  high  rate  of  interest  will  sell  more  readily 
than  a  bond  at  a  low  rate  of  interest.  In  securing  loans 
the  banks  will  have  little  competition.  In  selling  bonds 
the  competition  will  be  severe.  The  banks  naturally  will 
issue  bonds  bearing  such  rates  of  interest  as  will  make 
them  attractive  to  investors.  The  banks  can  lose  nothing 
in  issuing  bonds  at  a  high  rate  of  interest,  because  they 
are  permitted  to  charge  an  interest  rate  on  their  mortgages 
1  per  cent,  higher. 

It  would  appear  from  these  observations  that  the  provi- 
sion in  the  Commission  Bill,  and  the  similar  provisions  in 
Section  25  of  the  Senate  Committee  Bill  which  declare 
that  the  normal  rate  of  interest  on  mortgage  loans,  shall 
"  be  established  by  adding  1  per  cent,  to  the  rate  of  inter- 
est specified  in  the  latest  issue  of  farm  loan  bonds,"  will 


146  Land  Credits 

tend  to  increase  rather  than  lower  the  rate  of  interest  to 
farmers.  The  maximum  rate  of  interest  should  be  estab- 
lished by  law,  or  such  provisions  sliould  be  placed  in  the 
law  as  will,  if  possible,  make  it  to  the  interests  of  the 
banks  to  give  the  borrowers  the  lowest  rate  obtainable. 
Especially  the  banks  should  have  a  financial  interest  in 
selling  bonds  bearing  the  lowest  rate  of  interest  possible. 
The  law  should  give  the  banks  every  encouragement  to  offer 
investors  a  bond  that  will  command  money  at  the  lowest 
rate  of  interest.  To  illustrate:  suppose  (1)  that  the  law 
fixed  the  maximum  interest  charge,  including  all  charges, 
commissions,  and  amortization  payments,  at  5  per  cent,  an- 
nually; (3)  that  the  law  did  not  limit  the  dividends  to 
shareholders  of  banks.  Under  these  provisions,  the  banks 
would  be  interested  in  selling  their  farm-mortgage  bonds 
at  the  lowest  rate  of  interest  possible.  They  would  like- 
wise be  interested  in  an  economical  administration  of  the 
business  of  the  bank.  They  would  have  every  inducement 
to  manage  their  business  with  the  highest  degree  of  effi- 
ciency. They  would  be  interested  in  securing  and  main- 
taining the  confidence  of  the  public.  In  short,  they  would 
have  ever}^  possible  encouragement  and  incentive  to  estab- 
lish a  good  reputation  among  investors  with  a  view  to  dis- 
posing of  their  mortgage  securities  in  large  quantities,  on 
good  terms  and  with  promptness.  But  when  the  law  limits 
their  dividends,  restricts  their  profits,  and  still  allows  them 
to  charge  an  interest  rate,  1  per  cent,  higher  than  the 
bond-interest  rate,  the  banks  are  placed  in  an  attitude  of 
indifference  as  to  the  rate  of  interest  at  which  their  bonds 
sell.  In  the  first  place,  their  dividends  are  limited,  the 
margin  of  their  profits  is  restricted  and  the  banks  become 
cliiefly  interested  in  the  amount  of  business  which  they 
transact.  For  negotiating  loans  and  selling  the  bonds, 
the  law  allows  them  1  per  cent,  per  annum  margin.  This 
they  can  have  regardless  of  the  rate  of  interest  on  their 
loans,  or  the  rate  of  interest  on  their  bonds. 


Interest  147 

3.  Interest  Rates  in  Other  Countries.  In  enacting  land- 
credit  legislation  with  a  view  to  reducing  the  interest 
charge  on  farm-mortgage  loans,  the  rates  of  interest  pre- 
vailing in  other  countries  should  be  studied.  The  land- 
credit  institutions  of  other  countries  furnish  credit  to  farm- 
ers at  a  low  rate  of  interest.  What  other  countries  have 
done,  this  country  is  able  to  do,  and  should  do. 

The  five  Land-improvement  Annuity  banks  of  Ger- 
many are  not  permitted  by  the  law  to  charge  an  interest 
rate  in  excess  of  4.5  per  cent.,  exclusive  of  amortization 
payment,  and  a  commission  of  one-fifth  of  1  per  cent,  for 
cost  of  business. 

Only  about  20  per  cent,  of  the  assets  of  the  German 
savings  banks  are  invested  in  farm  loans,  and  many  of 
these  loans  are  for  short  terms  which  naturally  bear  a 
higher  rate  of  interest  than  a  long-term  loan.  While  the 
savings  banks  are  not  as  a  rule  profit-sharing  institutions, 
yet  one  of  their  objects  is  to  encourage  thrift  and  they  pay 
depositors  a  high  rate  of  interest  on  their  deposits.  They 
are  not,  therefore,  designed  especially  to  secure  a  low  rate 
of  interest  on  farm  mortgages.  Still  their  rates  are  reason- 
able, running  from  3  to  5  per  cent. 

The  rate  of  interest  charged  by  the  Credit  Foncier,  in 
1913,  was  4.30  per  cent.,  and  this  included  amortization 
payments  and  annual  payments  toward  administrative  ex- 
penses. 

Eeferring  to  the  rates  of  interest  charged  by  the  joint- 
stock  mortgage  companies  of  Germany,  Cahill  in  his  re- 
port, Senate  Document  17,  63rd  Congress,  page  69  says: 

"  The  rate  of  interest  charged  to  the  borrower  is  mainly 
dependent  upon  the  general  market  conditions;  this  is, 
upon  the  rate  which  the  banks  find  necessary  to  pay  at  the 
time  upon  bonds  to  be  issued.  The  act  lays  down  that  they 
may  not  issue  bonds  at  a  lower  rate  than  they  receive  upon 
the  mortgage.  For  some  years  most  banks  have  found  that 
bonds  bearing  less  than  4  per  cent,  are  not  easily  market- 


148  Land  Credits 

able,  and  the  usual  rates  payable  upon  loans  are  accord- 
ingly 4  per  cent,  plus  a  margin  of  about  ^4  P^r  cent. 
The  cost  of  valuation  and  other  expenses  also  fall  upon  the 
borrower,  and  these,  which  may  amount,  in  the  case  of 
agricultural  loans,  to  2  or  3  per  cent.,  are  deducted  from 
the  loan." 

Cahill  testifies  that  the  Landschaften  and  other  public 
land-credit  institutions  of  Germany,  make  loans  at  a  lower 
rate  of  interest  than  profit-sharing  banks,  when,  in  discuss- 
ing the  reasons  why  the  joint-stock  mortgage  companies 
had  not  made  more  loans  to  farmers  (S.  Doc.  17,  63rd  Con- 
gress, page  66)  he  said: 

"Landowners  on  their  side  did  not  seek  their  services, 
partly  because  their  credit  was  dearer  than  that  of  the  ex- 
isting institutions  and  partly  because  other  conditions 
(e.  g.,  joint-stock  mortgage  banks  do  not  allow  borrowers 
to  dispose  so  freely  of  accumulated  sinking-fund  payments 
as  the  mortgage  credit  associations)  were  not  granted  by 
them." 

The  interest  rate  on  the  bonds  of  the  joint-stock  mort- 
gage companies  of  Germany,  is  shown  in  the  statement  of 
Cahill,  Senate  Document  17,  63rd  Congress,  page  71,  as 
follows : 

"  At  the  end  of  1909  the  joint-stock  mortgage  banks  had 
in  circulation  mortgage  bonds  to  the  value  of  £487,619,459, 
apart  from  those  amounting  to  £14,535,830  in  communal 
bonds.  Of  the  total,  58.48  per  cent,  bore  4  per  cent,  in- 
terest and  39.65  per  cent.  3l^  per  cent.,  98.13  per  cent, 
thus  bearing  these  two  rates.  The  balance  was  practically 
confined  to  those  at  3%  per  cent,  and  4i^  per  cent.  It 
was  more  than  once  remarked  to  the  writer  by  directors 
of  these  banks  that  for  some  years  bonds  at  less  than  4 
per  cent,  were  practically  unsalable.  A  comparison  of  the 
figures  of  1900  with  those  of  1909,  made  by  Dr.  Schulte, 
affords  complete  confirmation  of  this  statement.  The  total 
value    of    the    mortgage    bonds    in    circulation    in    1900 


Interest  149 

amounted  to  £318438,233,  and  their  communal  bonds  to 
£3,501,445;  61,77  per  cent,  of  these  bore  3i/>  per  cent,  (as 
against  39.65  in  1909),  and  38.03  per  cent,  bore  4  per  cent, 
(as  against  58.40  per  cent,  in  1909)." 

The  Prussian  Central  Land  Credit  Company,  of  Ger- 
many, charges  borrowers  from  4.25  to  4.50  per  cent,  in- 
terest. In  addition  the  borrowers  pay  on  the  face  of  the 
loan  1  per  cent,  as  a  profit  to  the  bank  and  from  1  to  11/4 
per  cent,  on  the  face  of  the  loan  to  cover  administration 
charges.  The  borrower  also  pays  1  per  cent,  tax  to  the 
State.i 

Eeferring  to  the  interest  rates  of  the  State  and  provin- 
cial mortgage-credit  banks  of  Germany,  Cahill,  Senate 
Document  17,  63rd  Congress,  page  13,  says: 

"  The  rates  of  interest  usually  range  at  the  present  time 
from  31/^  to  4  per  cent.,  and  there  is  in  addition  an  an- 
nual charge  for  cost  of  administration  (usually  I/4  to  I/2 
per  cent.)." 

The  Bavarian  Agricultural  Bank,  with  total  loans  in 
1911,  amounting  to  $32,827,778,  was  carrying  $21,671,317 
at  3%  per  cent.  (Cahill,  S.  Doc.  17,  63rd  Congress, 
page  42.) 

Eeferring  to  the  interest  rates  of  the  sixteen  State, 
provincial  and  district  mortgage  banks  of  Germany,  Ca- 
hill (S.  Doc.  17,  63rd  Congress,  page  61),  says: 

"  Not  aiming  at  profits  beyond  the  payment  of  expenses, 
although,  in  fact,  considerable  sums  are  usually  allocated 
to  public  purposes  as  the  result  of  their  operations,  they 
grant  loans  more  cheaply  than  the  joint-stock  mortgage 
banks." 

The  State,  province,  or  district,  through  legislative  en- 
actment fixes  the  rate  of  interest  chargeable  on  loans,  and 
which  bonds  shall  bear,  in  the  sixteen  State,  provincial, 
and  district  mortgage-credit  banks  of  Germany,  as  is  shown 

iHerrick,  p.    109. 


150  Land  Credits 

by  the  statement  of  Cahill  (S.  Doc.  17,  63rcl  Congress, 
page  Gl)  referring  to  some  of  the  drawbacks  of  these  in- 
stitutions, when  he  says : 

"  Certain  drawbacks  are  associated  with  the  manage- 
ment and  the  control  of  the  banks  now  being  considered 
by  the  State  or  public  assemblies  of  districts  or  provinces. 
Thus  the  necessity  of  obtaining  the  sanction  of  a  represen- 
tative assembly  for  changing  the  rate  of  interest  payable 
on  bonds  or  chargeable  on  loans,  the  strict  adherence  to 
formal  rules  (e,  g.,  as  regards  lending  over  fifty  or  otber 
percentage  of  the  assessed  value),  for  whose  alteration  sim- 
ilar authority  is  required,  may  often  prove  disadvantageous 
in  practice.'^ 

The  Provincial  Diets  of  the  Austrian  provinces  fix  the 
maximum  rate  of  interest  the  Provincial  Mortgage  In- 
stitute of  Lower  Austria  is  allowed  to  charge.  The  Min- 
ister of  Agriculture  in  a  statement  (S.  Doc.  214,  63rd 
Congress,  page  189),  says: 

"  By  reason  of  the  statutory  provisions,  requiring  that 
the  rate  of  interest  on  debenture  and  communal  loans 
of  this  institution  must  be  equal  to  the  rate  of  interest 
ser\ang  as  a  basis  for  the  loan,  a  fixed  and  stable  rate 
of  interest  was  fixed,  the  maximum  of  which  is  determined 
by  the  Diet.  The  present  rates  of  interest  are  4  and  4^4 
per  cent.'' 

The  interest  rate  charged  borrowers  by  the  Hungarian 
Land  Credit  Institution  is  shown  by  a  statement  of  Count 
Hoyos,  a  director  (S.  Doc.  214,  G3rd  Congress,  page  156), 
which  is  as  follows : 

"  Mortgage  bonds  are  now  issued  at  4%  per  cent.,  run- 
ning 63  years,  with  a  yearly  charge,  including  amortiza- 
tion, of  4.85 ;  also  mortgage  bonds  at  4  per  cent.,  run- 
ning 50  years,  with  a  yearly  charge  of  4.7. 

"  The  price  which  the  borrower  netted  in  our  last  loan 
was  91.50;  in  the  second  case  it  was  84.  In  the  first  case 
the  money  cost  the  borrower  5.29,  in  the  second  case 
5.6." 


Interest  i^i 

Also  by  statement  of  the  Vice-President,  Mr.  Coloman  de 
Szill  (S.  Doc.  214,  63rd  Congress,  page  160),  as  follows: 

"  Q.  What  rates  are  charged  for  money  and  the  per- 
centage that  is  paid  for  interest,  administration,  and 
amortization  ? 

"  A.  The  rates  varied ;  also  the  periods.  When  the 
bank  began  work  the  rate  was  S^/o  per  cent,  and  the  period 
331/2  years.  Later  the  rate  was  5  per  cent,  and  the  period 
15  years,  or  331/2  years.  Still  later  the  rate  was  4i^  per 
cent.,  the  period  IT,  25,  40,  or  50  years,  and  afterwards  4 
per  cent,  with  periods  20,  30,  40,  50,  65  years.  The  ad- 
ministration expenses  at  the  beginning  were  1  per  cent., 
but  soon  fell  to  i/>  per  cent.,  and  later  successively  to  0.35, 
0.30,  0.25,  0.21,  0.19,  and  0.16.  The  amortization  varies 
according  to  the  rate  of  interest  and  the  period.  At  pres- 
ent, price  of  money  being  high,  the  rate  of  interest  is  5 
per  cent.,  the  administration  expenses  (commission)  have 
risen  to  0.35  per  cent,  after  being  for  a  time  0.25  per 
cent.,  and  the  periods  are  now  50  and  65  years." 

The  tendency  of  profit-sharing  banks  to  charge  a  high 
rate  of  interest  is  shown  in  the  statement  of  the  Austrian 
Minister  of  Agriculture  (S.  Doc.  214,  63rd  Congress,  page 
180),  in  which  he  says: 

"  The  banks  operating  for  profit  received  slow  and  scant 
returns  on  their  investments  in  average  agricultural  hold- 
ings, so  that  these  sources  of  credit  remained  exclusively 
open  to  the  large  agricultural  estates  up  to  the  present  day 
for  the  reason  that  these  estates  became  more  and  more 
industrialized  and,  consequently,  better  able  to  pay  the  high 
rates  of  interest  demanded  by  the  banks." 

In  Senate  Document  214,  63rd  Congress,  page  41,  there 
is  a  statement  bv  a  director  of  the  Florence  Savings  Bank 
relative  to  the  rates  of  interest  on  long-time  mortgage 
loans  made  by  this  institution,  as  follows: 

"  The  rate  of  interest,  as  a  rule,  is  4  per  cent.,  but  it 
rises  sometimes  to  4^  per  cent.,  and  sometimes  as  high 


1 1;2  Land  Credits 

as  5  per  cent.,  according  to  the  state  of  the  money  market. 
To  this  must  be  added  a  charge  for  income  tax.  In  case 
of  long-time  loans,  made  for  thirty-five  years,  the  regula- 
tions provide  that  the  rate  of  interest  may  vary,  always  re- 
maining at  %  per  cent,  higher  than  the  rate  of  in- 
terest paid  by  the  savings  bank  to  its  depositors.'^ 

The  interest  rate  charged  by  the  Bavarian  Agricultural 
Bank,  is  shown  by  statements  of  the  President  of  the  Ba- 
varian Council  of  Agriculture,  Senate  Document  214,  63rd 
Congress,  page  268,  as  follows: 

"  The  present  rate  of  interest  on  mortgages  and  loans 
to  rural  communities  is  4^4  per  cent.,  the  whole  annual 
payments  thus  amounting  to  4%  to  5  per  cent.'' 

The  managing  director  of  the  Wiirttemberg  Credit  Union, 
gives  the  interest  charges  of  the  association  (S.  Doc.  214, 
63rd  Congress,  page  301),  as  follows: 

"  On  a  50-year  amortization  mortgage,  the  interest  of 
the  borrower  is  at  the  rate  of  4.85  per  cent.,  arrived  at 
as  follows:  Interest,  4  per  cent.,  amortization  0.66  per 
cent.,  advance  to  reserve,  returnable  with  compound  in- 
terest at  the  expiration  of  the  loan,  0.19  per  cent. —  total 
4.85  per  cent." 

Mr.  Reusch,  Councilor  for  the  Nassau  Mortgage  and 
Savings  Bank  (S.  Doc.  214,  63rd  Congress,  page  338), 
referring  to  the  interest  rates  of  this  institution,  says : 

"  The  rate  of  interest  stands  to-day  at  414  per  cent., 
and  before  it  was  4  per  cent.,  and  before  that  3%  per  cent." 

That  public  mortgage-credit  institutions  furnish  credit 
cheaper  than  private  joint-stock,  dividend-paying  banks 
is  shown  in  the  statement  made  by  Prof.  Dutterwiller, 
director  of  the  Bank  of  Zurich,  Switzerland  (S.  Doc.  214, 
63rd  Congress,  page  463),  which  is  as  follows: 

"  Besides  the  canton  banks  there  are  also  private.  Joint- 
stock,  and  cooperative  banks,  which  conduct  the  same 
kind  of  business  as  the  canton  banks.  The  rates  of  in- 
terest on  credit  granted  by  the  last-named  class  of  banks 


Interest  i^Z 

are  lower  than  those  of  the  private  banks.  The  efforts 
made  by  the  latter  to  secure  profits  are  greater,  because 
they  have  to  pay  dividends  to  their  stockholders,  whereas 
the  canton  banks  have  only  to  pay  the  customary 
rates  of  interest  on  their  endowed  capital  to  the  cantons 
themselves  as  the  holders  of  their  bonds.  The  private 
mortgage  banks  pay  dividends  as  high  as  6  per  cent.,  as, 
for  example,  the  Aargau  Mortgage  Bank.  Even  though 
the  credit  of  private  banks  is  furnished  at  somewhat 
higher  rates,  there  is  still  business  enough  for  this  class 
of  banks,  for  the  reason  that  the  funds  at  the  disposal  of 
the  State  banks  are  not  sufficient  to  supply  all  of  the 
demands  for  credit." 

The  Mortgage  Bank  of  Eindhoven,  Holland,  has  capital 
of  1,000,000  florins  or  $400,000.  Its  interest  charge  is 
4.25  per  cent,  per  annum,  including  one-fourth  of  one 
per  cent,  for  administration  charges.^ 

4.  Interest  Rates  on  Bonds.  The  rate  of  interest  upon 
the  mortgage  bonds  when  sold  at  par  value  practically 
determines  the  rate  of  interest  on  the  farm  mortgages. 
Ordinarily  the  mortgages  bear  an  interest  rate  slightly 
above  the  interest  on  the  bonds.  In  this  way,  loan  in- 
stitutions generally  secure  their  funds  to  meet  administra- 
tion expenses.  Some  institutions  issue  bonds  bearing  the 
same  rate  of  interest  as  the  mortgages  put  up  as  collateral 
security  therefor.  In  such  cases  the  administration  ex- 
penses are  obtained  by  requiring  borrowers  to  pay  a  com- 
mission, or  other  expense  fees,  paid  annually  or  otherwise. 
Sometimes  expenses  are  met  largely  by  profits  on  other 
business  which  some  local  banks  are  authorized  to  trans- 
act. But  farm-loan  institutions  secure  funds  on  which  to 
make  loans  by  the  sale  of  mortgage  bonds.  In  other 
words,  in  effect  they  borrow  money,  through  the  sale  of 
their  mortgage  bonds.     The  interest  rate  which  these  bonds 


1  Senate  Doc.  214,  GSrd  Congress,  p.  521. 


154  Land  Credits 

bear  indicates  the  rate  of  interest  the  institutions  are  pay- 
ing investors  for  money  they  loan  to  farmers.  In  brief, 
the  mortgage  bonds  are  farm  mortgages  in  different  form. 
It  will  throw  light  on  the  subject  to  ascertain  the  rate  of 
interest  European  farm-mortgage  bonds  bear,  and  the  price 
at  which  these  bonds  usually  sell. 

The  Silesian  Landschaft  has  issued  debentures  on  loans 
to  both  members  and  non-members  to  the  amount  of  $150,- 
328,879.  The  debentures  bore  interest  rates  at  3,  3I/2 
and  4  per  cent.  The  3  per  cent,  debentures  were  quoted 
at  from  81.20  to  84.20,  the  Zy^  per  cent,  debentures  at 
from  90. GO  to  93.50,  and  the  debentures  bearing  4  per 
cent,  interest  were  quoted  at  from  99.65  to  100.85.^ 

Count  Hoyos,  a  director  in  the  Hungarian  Land  Credit 
Institution,  in  a  statement  (S.  Doc.  214,  63rd  Congress, 
page  156),  relative  to  the  interest  on  bonds  issued  by  the 
institution  says : 

"  Mortgage  bonds  are  now  issued  at  414  per  cent.,  run- 
ning 63  years,  with  a  yearly  charge,  including  amortiza- 
tion, of  4.85 ;  also  mortgage  bonds  at  4  per  cent.,  running 
50  years,  with  a  yearly  charge  of  4.7. 

"  The  price  which  the  borrower  netted  in  our  last  loan 
was  91.50;  in  the  second  case  it  was  84.  In  the  first  case 
the  money  cost  the  borrower  5.29,  in  the  second  case  5.6." 

The  Managing  Director  of  the  Credit  Union  of  Wiirt- 
temberg,  referring  to  the  price  and  interest  on  the  mort- 
gage bonds  of  the  institution  (S.  Doc.  214,  63rd  Congress, 
page  301),  says: 

"  The  present  market  rate  of  the  association  bond  is 
97.50,  on  a  4  per  cent,  interest  basis." 

The  European  farm-mortgage  credit  institutions  have 
succeeded  in  issuing  bonds  which  in  the  eyes  of  investors 
have  been  practically  as  safe  as  bonds  issued  by  com- 
munal,  provincial,   State  and  Imperial   governments   of 

iHerrick,   p.   76. 


Interest  155 

Europe.  These  institutions  have  been  able  to  borrow 
money  virtually  as  cheap  as  the  governments  under  which 
they  do  business.  The  European  farmers  have  been  able 
to  borrow  money  on  their  farms,  almost,  if  not  entirely, 
as  cheap  as  their  governments  have  been  able  to  borrow  it. 
It  is  true  that  in  some  cases  these  bonds  are  secured  by 
the  guaranty  of  the  governments.  But  this  is  not  true  in 
other  cases.  The  fact  is,  it  is  a  fundamental  principle  of 
European  land-credit  institutions,  by  some  means,  method, 
process,  or  arrangement  to  make  the  farm-mortgage  bonds 
absolutely  secure.  This  places  them  on  a  level  with  the 
securities  of  the  strongest  governments  of  the  world.  To 
make  the  farm-mortgage  bond  as  good  as  gold  should  be 
the  ambition  of  all  those  who  have  in  their  charge  the 
buildinof  of  the  land-credit  institutions  for  the  American 
farmers. 

The  following  testimony  shows  how  farm-mortgage  bonds 
in  European  countries  have  stood  in  comparison  with  gov- 
ernment securities: 

Mr.  Cahill  in  his  report.  Senate  Document  17,  63rd 
Congress, , page  51,  referring  to  the  Landschaften,  says: 

"  It  may  be  observed  that  the  bonds  of  these  associa- 
tions have  consistently  maintained  a  relatively  strong 
position  on  the  market.  The  quotations  of  the  majority 
of  these  appear  to  remain  from  under  1  to  about  2  per 
cent,  lower  than  Prussian  or  Imperial  Government  stock 
bearing  the  same  rates  of  interest.  More  than  a  century 
ago  they  proved  their  strength.  The  writer  was  informed 
by  the  director  of  one  association  that  4  per  cent.  Prussian 
stock  in  1803-1805  stood  at  first  at  83,  then  at  50,  and  in 
1808  at  20,  yet  that  Silesian  Association  bonds  did  not 
sink  below  50." 

The  value  of  the  mortgage  bonds  of  the  Hungarian 
Land  Credit  Institution  compared  with  that  of  the  State 
is  shown  by  the  statement  of  Count  Hoyos,  a  director,  made 
before  the  Commissions  which  went  abroad  to  study  Eural 


156  Land  Credits 

Credit  system?  of  Europe.  This  is  shown  in  Senate  Docu- 
ment 214,  63rd  Congress,  page  157,  by  questions  and  an- 
swers as  follows: 

"  Q,  JSTow,  do  your  bonds  fall  below  100  more  than  they 
did  some  years  ago? 

« A.     Yes. 

"Q.     Why? 

"  A.  There  is  a  great  want  of  money,  and  for  that  rea- 
son there  are  more  sellers  than  buyers.  Some  years  ago 
our  4  per  cents,  were  at  93  and  now  they  are  at  85. 

"  Q.  Do  the  State  bonds  fall  more  in  the  market  now 
than  the  land-mortgage  bonds? 

"  A.    Yes,  more  by  10  per  cent." 

Long-term  mortgage  credit,  varying  from  10  to  50  years, 
is  extended  by  seven  savings  banks  of  Italy.  The  stand- 
ing of  these  bonds  compared  to  that  of  government  bonds 
is  shown  by  a  statement  made  by  the  Minister  of  Agricul- 
ture, Senate  Document  214,  63rd  Congress,  page  24,  which 
is  as  follows : 

"  With  regard  to  the  degree  of  security,  investment  in 
mortgage  bonds  is  equal  to  that  of  Government  bonds,  not 
only  in  public  estimation,  but  legally.  In  fact,  the  so- 
cieties, the  ethical  institutions,  the  benevolent  associations, 
and  other  associations  which  are  allowed  by  law  to  invest 
their  funds  in  whole  or  in  part  in  securities  issued  or 
guaranteed  by  the  State  have  the  right  to  invest  from 
one  quarter  to  the  whole  in  bonds  issued  by  the  institutes 
of  mortgage  credit.  Moreover,  the  mortgage  bonds  can 
be  accepted  with  the  security  of  the  administration  of  the 
State,  of  the  provinces,  of  the  communes,  of  the  public 
institutions  of  charity,  of  the  savings  banks,  and  of  the  city 
pawnbrokers  at  a  valuation  regulated  by  nine-tenths  of  the 
average  prices  of  the  bourse  for  the  preceding  semester. 

"  As  to  the  prices  of  the  mortgage  bonds,  it  is  not 
exactly  accurate  to  affirm  that  they  are  always  higher  than 
the  State  bonds.     Account  must  be  taken  of  the  variations 


Interest  i57 

of  the  rates  of  interest,  which  fluctuate  between  3I/2  and 
5  per  cent.  The  equality  of  the  rates  of  interest  is  a  reason 
tending  to  prevent  the  rise  of  prices  of  the  mortgage  bonds 
above  par,  and  also  the  possibility  of  repayment  every 
semester  —  a  reason  not  aj^plicable  to  the  deeds  of  the 
'  Consolidated  funds,'  which  are  not  redeemable.  What 
can  be  affirmed  is  that  the  mortgage  bonds  always  main- 
tain a  high  level  and  a  rate  not  superior  to  the  nominal 
value.  Only  lately,  when  there  has  been  a  rising  tendency 
in  all  rates  of  interest,  the  mortgage  bonds  issued  at  low 
rates  (3i/^,  3%,  4  per  cent.)  have  suddenly  been  sensibly 
depressed." 

Dr.  A.  Schlesinger,  United  States  Viee-Consul  and 
Deputy  Consul  General  at  Munich,  referring  to  the  prices  at 
which  the  bonds  of  the  Bavarian  mortgage  banks  sold  (S. 
Doc.  214,  63rd  Congress,  page  27G),  makes  this  statement: 

"  Land-mortgage  bonds  in  Bavaria  are  declared  by  law 
to  be  a  proper  investment  for  all  trust  funds,  and  these 
securities  are  thus  placed  in  the  same  class  as  city  and 
State  bonds  for  such  purposes.  An  issue  of  land-mortgage 
bonds  bearing  an  interest  rate  of  31/0  per  cent,  was  quoted 
on  the  stock  exchange  May  9,  1913,  at  87.80,  this  rate 
being  paid  for  bonds  which  were  withdrawn.  Current 
bonds  of  the  same  issue  —  that  is,  bonds  which  had  not  yet 
matured  nor  been  drawn  by  lot  to  be  canceled  under  the 
amortization  feature  of  the  bonds  —  were  quoted  at  86.10. 
Four  per  cent,  bonds  were  quoted  at  from  98  to  98.50, 
these  quotations  being  taken  from  the  Munich  latest  news 
issue  of  May  9.  At  the  same  date  Bavarian  State  4  per 
cent,  bonds  were  quoted  at  98.  Quotations  for  May  31, 
which  was  the  latest  date  obtainable,  show  no  change  from 
these  quotations.  The  bonds  for  which  these  quotations 
were  made  have  no  government  guaranty,  either  by  the 
imperial  or  provincial  government." 

Eeferring  to  the  mortgage  bonds  of  the  Nassau  Mortgage 
and  Savings  Bank,  Mr.  Eeusch,  councillor  for  the  bank 
(S.  Doc.  214,  63rd  Congress,  page  338),  says: 


1^8  Land  Credits 

"  The  land  bank  issues  bonds,  and  these  bonds  are  in 
such  demand  in  Prussia  and  Germany  that  to-day  they 
stand  higher  than  government  bonds.  The  4  per  cent, 
bonds  are  to-day  quoted  at  99." 

Dr.  Kapp-Konigsberg,  General  Director,  in  a  statement 
(S.  Doc.  214,  63rd  Congress,  page  382),  referring  to  the 
safety  and  standing  of  the  debentures  issued  by  the  Land- 
schaften,  says: 

"  The  landschaft  bonds  are  therefore  absolutely  secure 
and  as  reliable  investments  quite  as  popular  as  loans  to 
the  State.  The  landschaft  bond  has  become  a  perfect  type 
of  secure  investment." 

Dr.  Brodnitz,  Professor  of  Political  Economy  in  the 
University  of  Halle,  referring  to  the  price  of  debentures 
issued  by  the  Landschaften  (S.  Doc.  214,  63rd  Congress, 
page  360),  says: 

"  Q.  How  does  the  value  of  these  bonds  in  Prussia  com- 
pare with  government  bonds  ? 

"A.  It  is  Just  a  little  lower,  because  they  only  have  a 
restricted  market.  I  am  not  sure,  but  I  think  government 
4  per  cent,  bonds  stand  to-day  at  97  in  Berlin,  and  land- 
schaft bonds  at  95 ;  they  are  somewhat  lower. 

"  Q.  How  does  the  fluctuation  in  value  over  a  period  of 
years  compare  in  the  case  of  these  bonds  with  government 
bonds  ?     Are  they  as  steady  in  value  as  government  bonds  ? 

"  A.  No ;  they  go  in  the  same  way  except  in  times  of 
crisis.  For  instance,  just  100  years  ago,  when  there  was  a 
great  crisis  in  Prussia,  the  value  of  landschaft  bonds  was 
much  higher  than  that  of  government  bonds,  because  the 
Government  could  not  pay  interest  owing  to  the  wars  against 
Napoleon,  but  the  Landschaft  did  pay  interest.  But  in 
ordinary  times  the  price  of  landschaft  bonds  is  a  trifle 
lower  than  that  of  government  bonds." 

Further  on,  page  362,  he  says: 

"  Wliy  is  it  that  the  landschaft  bonds  can  be  issued  at  a 
low  rate  of  interest? 


Interest  159 

"  A.  Because  the  Landschaf t  obtains  its  funds  through 
negotiable  bonds  so  liquid  and  secure  in  character  as  to 
enable  those  bonds  to  be  sold  in  the  open  market  at  as  high 
a  price  for  the  bonds  and  at  as  low  a  rate  of  interest  as 
government  bonds." 

Henry  W.  Wolff  in  "  Cooperative  Banking,"  page  236, 
referring  to  the  price  of  debentures  issued  by  the  Land- 
schaf ten,  says : 

"  I  may  at  once  add  that,  although,  during  short  periods, 
landschaft  bonds  have  sometimes  been  depreciated,  gen- 
erally speaking  they  rule  at  least  as  steady  as  Government 
securities,  and  have  often  been  over  par." 

Further  on,  page  242,  covering  the  same  point,  Mr. 
Wolff  says : 

"  And,  generally  speaking,  the  price  of  their  bonds  has 
continued  to  advance.  There  have  been  times  of  tight 
money,  marked  by  a  want  of  confidence,  when  quotations 
fell  below  par  —  once  or  twice  considerably  so.  But,  as 
a  general  rule,  land  bonds  have  ruled  steadier  than  even 
Government  securities,  and  about  as  high,  sometimes 
higher." 

It  is  said  that  the  United  States  can  borrow  money 
cheaper  than  any  other  nation  in  the  world.  It  is  a  pity 
it  can  not  also  be  said  that  the  American  farmers  can 
borrow  money  cheaper  than  the  farmers  of  any  other  na- 
tion in  the  world.  The  truth  is,  our  farmers  pay  higher 
rates  of  interest  than  European  farmers  pay,  and  have  less 
credit.  Why  does  not  the  national  government  frankly  ac- 
knowledge that  the  American  farmers  have  been  "  sinned 
against,"  and  proceed  to  make  amends  for  the  past  by  giv- 
ing them  something  at  least  as  good  as  European  govern- 
ments have  given  their  farmers? 

From  the  foregoing  quotations  it  will  be  seen  that  Eu- 
ropean land-credit  institutions  loan  on  farm  mortgages 
with  an  interest  charge  at  from  3  to  4  per  cent,  per  annum, 
and  that  the  total  annual  charge  for  interest,  annual  pay- 


l6o  Land  Credits 

ments  on  the  principal,  reserve  and  guaranty  funds,  and 
administration  charges  usually  is  less  than  5  per  cent, 
per  annum.  The  American  farmers  are  entithd  to  equal 
credit  facilities  at  no  higher  cost.  Farm-mortgage  bonds, 
based  upon  mortgages  upon  farms  of  the  United  States, 
should  sell  as  well  as  debentures  or  bonds  upon  European 
farm  mortgages.  European  farm-mortgage  debentures  and 
bonds  command  a  price  practically  as  high  as  the  bonds  of 
these  governments.  So  we  should  seek  to  place  the  farm- 
mortgage  bonds  in  this  country  upon  a  par  with  the  bonds 
of  the  Federal  government. 

5.  Diversity  of  Interest  Rates.  Any  system  of  land 
credit  established  by  the  national  government  should  seek 
to  provide  a  uniform  rate  of  interest  for  agriculture 
throughout  the  Union.  The  United  States  Commission 
reached  a  conclusion  just  the  reverse  of  this.  In  discussing 
this  question  the  Commission  in  its  report  (see  Part  II, 
S.  Doc.  380,  63rd  Congress,  page  29),  says: 

"  The  commission  also  recognizes  that  conditions  in  the 
various  States  are  different,  that  the  rates  of  interest  paid 
for  money  vary  in  different  localities  between  large  ex- 
tremes, and  that  the  legislatures  of  the  various  States  have 
recognized  these  varying  interest  rates  by  establishing 
widely  varying  legal  rates  of  interest  on  loans.  In  one 
State  the  legal  rate  will  be  6  per  cent.,  while  in  another 
State  it  may  be  as  high  as  10  per  cent.,  but  the  same  legal 
rate  exists  all  over  a  given  State. 

"  In  view  of  this  it  could  hardly  be  hoped  that  the 
land-bank  bonds  sold  by  a  bank  and  based  on  mortgages  in 
a  State  where  the  legal  rate  was  10  per  cent,  could  be  sold 
on  the  same  basis  as  similar  bonds  issued  by  a  bank  against 
mortgages  in  a  State  where  the  legal  rate  of  interest  was 
6  per  cent.  The  problem  in  some  of  its  phases  remains 
and  must  remain  a  State  problem  owing  to  our  dual  sys- 
tem of  government.  Obviously,  any  attempt  to  force  by 
Federal  legislation  one  rate  of  interest  in  all  the  States 


Interest  i6i 

would  be  futile.  The  law  of  demand  and  supply  will  con- 
trol these  rates,  and  legislation  which  attempted  to  en- 
force a  single  rate  all  over  the  country  would  result  in  mak- 
ing it  difficult  to  sell  land-bank  bonds  issued  in  a  State 
where  the  current  interest  rates  were  higher  than  those  at- 
tempted to  be  enforced  through  such  legislation.  On  the 
other  hand,  once  the  system  of  national  farm-land  banks  is 
in  operation  in  the  various  States  under  Federal  law  and 
the  bonds  are  recognized  as  safe  investments,  the  tendency 
would  be  to  reach  not  only  a  common  but  a  lower  level 
of  interest  rates." 

The  conclusion  reached  by  the  Commission  is  not  sat- 
isfactory. It  would  be  a  national  calamity,  if  Congress 
should  enact  a  law,  bringing  into  existence  a  system  of 
land  credit  that  would  enable  agriculture  in  one  section 
of  the  country  to  secure  credit  cheaper  than  that  secured  by 
agriculture  in  another  portion  of  the  country.  Some  of  the 
arguments  for  uniformity  of  interest  rates  will  be  pre- 
sented : 

First.  The  States  are  free  to  authorize  the  organiza- 
tion of  land-credit  institutions.  If  a  State  acts  in  this  di- 
rection, it  has  in  view  primarily  advantages  for  its  own 
farmers,  encouragement  to  the  industry  of  agriculture 
within  its  own  borders,  the  promotion  of  the  welfare  of  its 
own  people.  When  Congress  acts,  a  nation-wide  view- 
point must  control  its  action.  The  Federal  government 
acts  only  when  national  policies  are  necessary  for  the  good 
of  all.  The  State  may  legitimately  enact  a  law  designed 
to  give  its  own  farmers  an  advantage.  Ordinarily  a  State 
would  not  be  justified  in  enacting  laws  that  would  injure 
the  citizens  of  another  State,  but  certainly  a  State  may 
legislate  with  a  view  to  protecting  its  farmers,  its  business 
men,  and  its  wage-earners  from  discrimination  from  with- 
out the  State.  Indeed,  it  is  the  duty  of  the  legislature 
of  every  State,  to  enact  such  laws  as  will  contribute  to  the 
prosperity  of  its  own  people.     But  the  national  legislative 


1 62  Land  Credits 

body  should  seek  to  enact  such  laws,  to  inaugurate  such 
policies,  and  found  such  institutions  as  will,  so  far  as  pos- 
sible, distribute  benefits  uniformly  and  equitably  through- 
out the  land.  To  bring  into  existence  a  system  of  national 
land  banks,  which  admittedly  will  not  provide  credit  at 
uniform  rates  of  interest  throughout  the  Union,  is  an  ac- 
knowledgment that  the  Federal  government  is  lacking  in 
power,  and  efiiciency,  or  that  those  in  authority  are  lack- 
ing in  ability,  wisdom  or  statesmanship.  If  the  national 
government  can  not  give  to  all  equal  advantages  and  bene- 
fits, it  should  stay  out  of  this  field  of  activity  altogether. 
If  uniformity  of  interest  rates  to  all  farmers  can  not  be 
provided  by  the  national  government,  it  should  keep  its 
hands  off,  and  say  to  the  States,  "  Take  care  of  your  own 
farmers." 

Second.  The  Federal  government,  in  bringing  into  ex- 
istence national  land  banks,  should  see  to  it  that  the  farm- 
mortgage  bonds  placed  upon  the  market  are  absolutely  se- 
cure. To  authorize  the  existence  and  operation  of  any 
financial  machinery  to  handle  the  securities  of  the  farmers 
of  the  United  States  —  which  may  place  upon  the  market 
farm-mortgage  bonds  of  doubtful  value,  would  be  a  very 
grave  mistake  and  inflict  stupendous  loss  upon  agriculture. 
The  United  States  in  assuming  to  create  financial  institu- 
tions to  promote  agricultural  credit  must  see  to  it  that  the 
bonds  issued  by  such  institutions,  wherever  they  may  be 
located,  are  sound,  safe  and  secure.  Our  farm-mortgage 
banks  must  have  such  capital,  they  must  do  business  under 
such  restrictions  and  limitations,  they  must  be  subject  to 
such  supervision,  regulation  and  control,  they  must  be  re- 
quired to  maintain  such  surpluses,  reserves  and  guaranty 
funds,  as  will,  for  all  time,  settle  the  question  of  the  safety 
of  their  bonds.  No  institution  must  be  allowed  to  issue 
farm-mortgage  bonds,  al^out  the  payment  of  which  there 
can  be  any  question.  This  is  essential  to  the  success  of 
any   farm-credit   system   which   provides   either   adequate 


Interest  163 

credit  or  a  low  rate  of  interest.  This  idea  of  absolute  cer- 
tainty in  the  payment  of  farm-mortgage  bonds  is  the  foun- 
dation of  every  successful  system  of  land  credit  in  existence. 
Now,  the  national  government  through  the  laws  enacted, 
through  the  character  of  the  system  of  land  credit  it  estab- 
lishes, through  its  supervision,  regulation  and  control  can 
prevent  the  issuing  of  any  farm-mortgage  bonds  except 
bonds  which  are  as  safe  and  secure  as  the  Government 
itself.  If  this  can  not  be  accomplished  in  any  other  way, 
the  Federal  government  should  appropriate  funds  out  of 
the  national  treasury  to  add  to  the  capital  and  reserve  funds 
of  the  national  land  banks,  authorized  to  issue  farm-mort- 
gage bonds.  Or,  as  a  last  resort,  rather  than  have  farm- 
mortgage  bonds  placed  upon  the  market  of  questionable 
value,  the  Federal  government  should  guarantee  these  bonds 
as  many  of  the  European  States  have  done.  Kow,  assum- 
ing that  we  shall  issue  no  farm-mortgage  bonds  except 
those  that  are  absolutely  secure,  then  they  are  all  good  — 
they  are  all  safe,  they  are  all  sound,  they  are  all  gilt-edged 
securities  and  of  equal  value.  If  they  are  all  good  —  if 
there  can  be  no  question  about  the  payment  of  the  principal 
or  interest  of  any  farm-mortgage  bond  to  be  issued,  then 
these  bonds  should  all  sell  for  the  same  price.  In  other 
words,  if  the  farm-mortgage  bond  issued  by  a  national  land 
bank  of  Kansas  is  as  sound  and  safe  as  such  a  bond  issued 
by  a  farm-mortgage  bank  in  Indiana,  then  these  bonds  are 
of  equal  value  and  should  bring  the  same  price,  wherever 
presented  in  the  United  States. 

Third.  The  provisions  of  the  Commission  Bill  which 
make  the  farm-mortgage  bonds  issued  by  national  land 
hariks  available  as  securities  for  the  investment  of  certain 
trust  funds,  recognize  the  uniform  value  of  all  such  bonds, 
regardless  of  tlie  location  of  the  lands  covered  by  the  mort- 
gages which  secure  the  bonds. 

Section  34  of  said  bill  is  as  follows : 

"  Sec.  34.     That  the  national  land-bank  bonds  of  any 


164  Land  Credits 

national  farm-land  bank  shall  be  available  for  the  follow- 
ing purposes : 

"  First.  As  security  for  the  deposit  of  postal  savings 
funds  in  all  banks  authorized  to  receive  such  deposits. 

"  Second.  As  a  legal  investment  for  time  deposits  of  na- 
tional banking  associations,  as  provided  in  the  Federal  Re- 
serve Act,  and  for  the  funds  accumulated  in  savings  banks 
organized  and  doing:  business  in  the  District  of  Columbia. 


'O^ 


"  Third.  As  a  legal  investment  for  trust  funds  and  es- 
tates under  the  charge  of  or  administered  by  any  of  the 
courts  of  the  United  States. 

"  Fourth.  As  a  security  for  loans  from  national  bank- 
ing associations  to  national  farm-land  banks  or  to  indi- 
viduals, for  not  exceeding  five  years,  to  an  amount  aggre- 
gating not  over  25  per  cent,  of  the  capital  and  surplus  or 
to  one-third  of  the  time  deposits  of  the  national  banking 
association  making  such  loan." 

It  is  further  provided  in  said  section  that  the  Com- 
missioner of  Farm  Land  Banks  shall  have  the  power  to 
withhold  the  foregoing  privileges  from  the  national  land 
banks  of  any  State  until  the  State  shall  have  complied  with 
certain  requirements  prescribed  by  tlie  Commissioner,  and 
one  of  these  requirements  from  the  State  is  set  forth  in 
subdivision  "  C  "  of  said  Section  34  and  is  as  follows : 

"  That  the  national  land-bank  bonds  of  all  national  farm- 
land banks,  which  are  accepted  under  this  law  as  security 
in  the  various  matters  above  set  out,  shall  be  likewise  ac- 
cepted, under  the  State  laws  of  the  State  in  which  such  na- 
tional farm-land  bank  is  operated,  as  a  legal  investment  for 
the  funds  of  savings  banks  operating  in  that  State,  and  of 
trust  funds  and  estates  held  by  or  under  the  control  of 
the  courts  of  that  State,  and  as  a  legal  investment  for  the 
reserves  of  insurance  companies  incorporated  under  or 
operating  under  the  laws  of  that  State." 

It  is  certainly  inconsistent  to  argue  that  farm-mort- 
gage bonds  secured  by  mortgages  from  one  State  shall  sell 


Interest  165 

at  a  lower  rate  of  interest  than  bonds  secured  by  mortgages 
from  another  State,  and  yet  provide  by  law  that  the  bonds 
of  all  national  farm-land  banks,  regardless  of  the  State  in 
which  the  banks  are  located,  must  be  accepted  alike  as  se- 
curity for  trust  funds  of  all  kinds  under  the  control  of  the 
United  States  courts.  As  shown  by  the  first  subdivision 
of  Section  34  above  quoted,  national  land-bank  bonds  of 
any  national  farm-land  hanJc  shall  be  available  "  as  se- 
curity for  the  deposit  of  postal  saving  funds  in  all  other 
banks  authorized  to  secure  such  funds/'  This  provision 
places  the  bonds  issued  by  all  national  land  banks  upon  the 
same  basis.  The  postal  saving  funds  are  really  funds  of 
the  United  States.  Any  loss  thereto  would  be  loss  to  the 
United  States.  In  enacting  such  a  provision  the  national 
government  says  to  the  world  the  bonds  issued  by  all  these 
banks  are  alike  acceptable  as  security  for  the  funds  of  the 
United  States.  In  the  law  there  is  to  be  no  favoritism 
shown,  no  distinction  suggested,  no  discrimination  made. 
The  bonds  of  all  these  banks,  whether  from  Maine  or  Mis- 
souri, Oregon  or  Oliio,  Nebraska  or  New  Jersey  —  in  the 
eyes  of  the  law,  shall  be  placed  upon  the  same  footing, 
extended  the  same  privileges,  and  recognized  as  securities 
of  the  same  class,  character  and  validity.  If  the  United 
States  in  providing  securities  for  its  own  funds  shall  ac- 
cept the  bonds  of  all  national  land  banks,  without  dis- 
tinction or  discrimination,  why  should  not  investors? 
But  the  proposed  bill  in  subdivision  "  second "  above 
quoted  declares  that  the  national  land-bank  bonds  of  any 
national  farm-land  bank  shall  also  be  available,  "  as  a  legal 
investment  for  the  time  deposits  of  national-banking  as- 
sociations "  as  provided  in  the  Federal  Eeserve  Act. 
Here,  again  the  proposed  act  recognizes  that  the  bonds  of 
one  bank  shall  be  as  good  as  the  bonds  of  any  other  bank. 
The  national  banks  are  authorized  to  invest  their  time  de- 
posits in  these  bonds,  regardless  of  the  location  of  the  land 
bank  issuing  the  bonds.     Under  this  provision,  the  National 


1 66  Land  Credits 

banks  of  New  York  would  be  authorized  to  invest  time  de- 
posits in  bonds  issued  upon  farm  mortgages,  irrespective 
of  the  location  of  the  lands  covered  b}'  such  mortgages. 
Congress  has  exclusive  jurisdiction  over  the  savings  banks 
of  the  District  of  Columbia.  The  deposits  of  such  banks 
represent  the  savings  of  the  working  people.  These  in- 
stitutions should  be  allowed  to  invest  only  in  the  highest 
class  of  securities.  This  bill  prepared  by  the  United  States 
commission,  authorizes  these  savings  banks  to  invest  their 
funds  in  the  bonds  issued  by  any  national  land  bank. 
The  securities  of  all  such  banks  are  placed  upon  an  abso- 
lute equality.  Why  then  should  the  Commission  contend 
that  these  bonds  can  not  sell  on  equal  terms  —  on  the  money 
market?  Why  should  the  commission  claim  that  the  pro- 
posed national  land  banks  from  one  State  can  not  loan 
at  the  same  rate  of  interest  charged  by  banks  from  other 
States?  The  proposed  bill  goes  still  farther  and  declares 
that  the  bonds  of  any  national  land  bank  shall  be  available 
"  as  legal  investment  for  trust  funds  and  estates  under 
the  charge  of  or  administered  by  any  of  the  courts  of  the 
United  States."  When  it  is  proposed  by  act  of  Congress 
to  create  national  land  banks  in  every  State  in  the  Union, 
and  solemnly  declared  that  administrators,  clerks  and  other 
officers  of  the  United  States  courts,  having  control  of  trust 
funds  —  the  most  sacred  funds  in  existence  —  shall  with- 
out discrimination,  distinction  or  difference,  invest  these 
funds  in  the  bonds  of  any  national  land  bank  —  how  can 
those  who  propose  such  enactments  consistently  reach  the 
conclusion  that  there  can  not  be  a  uniform  rate  of  interest 
upon  loans  made  by  these  banks  in  different  States?  It 
must  be  borne  in  mind,  that  the  interest  rate  is  almost  en- 
tirely regulated  by  the  rate  of  interest  upon  the  bonds. 
If  these  bonds  are  of  equal  value,  if  they  are  all  recog- 
nized as  absolutely  safe  and  secure,  and  if  any  of  them 
may  be  used  as  securities  for  government  funds,  as  se- 
curities for  savings  bank  deposits,  as  security  for  postal 


Interest  167 

savings  bank  funds,  and  even  for  the  trust  funds  in  the 
hands  of  the  United  States  officers  —  vrhy  then  should  not 
the  bonds  of  one  bank  sell  to  investors  as  readily  as  the 
bonds  of  another  bank,  and  at  as  low  a  rate  of  interest? 
If  so,  then  the  banks  in  one  State  can  secure  money  to 
loan  at  as  cheap  a  rate  as  the  banks  of  any  other  State, 
and  there  should  be  no  great  difficulty  in  maintaining  a 
uniform  interest  rate  on  land  mortgages  throughout  the 
nation. 

Fourth.  The  margin  for  security  is  the  same  on  all 
loans  regardless  of  the  location  of  the  lands.  The  law- 
limits  all  banks  in  the  amount  of  loans  —  the  amount  must 
not  exceed  50  per  cent,  of  the  value  of  the  land.  The 
standard  of  value  will  be  the  same  everywhere.  This  will 
be  true  regardless  of  the  method  used  to  determine  the 
value  of  the  land.  If  the  selling  price  is  the  standard  — 
that  will  be  applied  everywhere.  If  the  productive  value  is 
used  as  a  test  in  one  State,  the  same  criterion  will  be  en- 
forced elsewhere.  The  banks  of  one  State  will  be  required 
not  only  by  the  law  itself,  but  by  the  strict  supervision 
of  Federal  officers,  to  measure  its  loans  upon  farm  lands 
by  the  same  standard  that  is  applied  in  every  other  State. 
The  fact  that  lands  vary  in  price  in  different  States,  does 
not  affect  the  quality  of  the  security.  The  mortgage 
can  not  under  the  system  in  amount  exceed  one-half  the 
value  of  the  land,  ascertained  by  the  same  rules  elsewhere. 
According  to  the  census  of  1910,  the  average  value  of 
farm  land  in  Indiana  was  $74.85  per  acre.  In  Alabama 
the  average  value  of  farm  lands  was  $13.90  per  acre.  In 
Nebraska  the  average  value  of  farm  lands  was  $46.95  per 
acre.  In  Forth  Dakota  on  an  average  farm  lands  were 
valued  at  $28.94  per  acre.  Oklahoma's  farm  lands  were 
shown  to  be  worth  $25.60  per  acre.  In  principle,  there 
could  be  no  difference  in  the  safety  of  a  loan  made  upon 
any  of  these  lands  where  in  each  case  the  mortgage  did 
not  exceed  half  the  value  of  the  land.     The  security  in  each 


1 68  Land  Credits 

case  is  absolute.  On  an  average  loans  made  on  farm  lands 
in  Indiana,  based  npon  the  census  valuation,  would  not 
exceed  $37.42  per  acre.  Upon  the  same  valuation,  the 
loans  made  on  North  Dakota  lands  would  not  exceed  $14.47 
per  acre.  For  the  amount  loaned,  the  North  Dakota  mort- 
gages would  be  just  as  secure  as  the  Indiana  mortgages. 
It  may  be  said  that  values  of  land  in  the  West  —  the  new 
portions  of  the  country  —  are  not  so  stable  and  well  set- 
tled. There  is  some  force  in  this  suggestion  —  at  least  ac- 
cording to  the  popular  conception  in  the  older  settled  States. 
The  situation  now  is  far  different  from  what  it  was  in  the 
years  immediately  following  the  settlement  of  the  Western 
States.  The  agricultural  possibilities  of  every  State  have 
been  ascertained.  Whatever  may  be  the  uncertainties,  the 
limitations,  the  drawbacks,  and  the  hardships  in  any  of  the 
Western  States,  such  limitations  are  well  known.  All  these 
things  would  be  considered  in  making  loans.  Besides  it 
must  be  remembered  that  in  every  State  in  the  Union,  there 
is  a  vast  variety  of  land  values.  Illinois  has  lands  worth 
$250  per  acre.  Illinois  also  has  lands  not  worth  $10  per 
acre.  In  fact  the  Union  has  a  vast  amount  of  lands  almost 
worthless.  The  census  of  1910  shows  that  even  in  our 
choice  agricultural  States  there  is  a  vast  amount  of  land 
that  is  waste,  unproductive  land.  Seventeen  and  one-tenth 
per  cent,  of  Iowa  lands  and  21.8  per  cent,  of  the  lands  in 
Illinois  are  unimproved.  So  in  all  the  great  agricultural 
States,  a  large  percentage  of  the  lands  is  unimproved  and 
unproductive  and  would  be  uncertain  security  for  mortgage 
loans.  The  whole  question  goes  back  then  to  the  safeguards 
provided  by  law  and  by  governmental  administration  to 
provide  against  over-valuation.  All  these  can  be  applied 
in  one  State  the  same  as  in  another.  On  an  average  loans 
of  $100  per  acre  upon  lands  valued  at  $200  per  acre  are 
no  more  secure  than  loans  of  $25  per  acre  upon  lands  valued 
at  $50  per  acre.     The  Western  lands  have  this  one  great 


Interest  169 

advantage.  The  present  selling  values  of  lands  in  the 
new  States  are  largely  controlled  by  the  density  of  popula- 
tion. The  "Western  States  are  not  so  densely  populated 
as  the  Eastern  and  Central  States.  There  is  not  so  great 
a  demand  for  land.  There  is  less  accumulated  wealth  to 
invest  in  lands.  All  these  things  affect  the  selling  price 
of  the  land  —  but  do  not  affect  the  productive  value  of  the 
land.  There  is  a  tendency  to  obtain  an  equilibrium.  From 
the  beginning  of  our  history,  down  to  the  present  time,  the 
tide  of  population  moved  westward,  where  the  population  is 
less  congested.  So  it  will  be.  Farming  population  will 
drift  to  those  States  where  land  is  cheaper.  This  not  only 
augments  the  price  of  land  in  the  West,  but  tends  to  prevent 
the  rise  of  prices  of  lands  in  the  more  thickly  settled  sec- 
tions of  the  country.  The  cheaper  lands  in  the  new 
States  will  naturally  rise  in  value.  This  certainty  of 
growth  in  the  value  of  the  lands  in  the  West,  South  and 
Southwest,  adds  immensely  to  the  security  these  lands  offer 
on  farm  loans  made  at  the  present  time  in  amounts  not 
exceeding  one-half  their  existing  value.  With  the  cer- 
tainty that  these  lands,  on  the  whole,  will  for  many  years 
constantly  increase  in  value,  a  mortgage  which  now  repre- 
sents 50  per  cent,  of  the  value  of  the  land,  in  10  years  will 
probably  not  represent  one-third  the  value  of  the  land,  and, 
at  no  distant  date,  will  not  represent  more  than  one-fourth 
the  value  of  the  land.  As  a  rule  this  gro'tt'th  in  value  will 
be  more  marked  in  low  priced  lands  than  upon  high 
priced  lands.  Indeed,  there  is  more  danger  in  shrinkage 
in  value  in  land  rated  at  $200  per  acre  than  in  lands  rated 
at  $25  per  acre.  For  many  years  to  come,  the  tide  of 
emigration  to  the  new  and  less  developed  agricultural  re- 
gions will  add  to  the  security  of  the  farm-mortgage  bond- 
holders. The  general  growth  of  population  —  making 
greater  demand  for  farm-homes  and  an  absolute  neces- 
sity for  ever-increasing  supply  of  food  products  —  is  an- 


lyo  Land  Credits 

other  miglity  force  that  will  add  constantly  to  the  value  of 
farm  lands  in  every  section  of  the  country,  and  thus  add 
to  the  value  of  farm  mortgages  and  farm-mortgage  bonds 
secured  thereby.  In  practice,  at  least,  scientific  farming  is 
only  in  its  infancy.  Science  with  all  its  mystic  and  mighty 
power  is  cooperating  to  give  additional  value  to  every  bond 
based  upon  a  farm  mortgage,  regardless  of  the  location 
of  the  land.  The  development  of  better  business  methods 
among  farmers  is  a  movement  which  promises  to  add  to 
the  profits  of  our  farmers  and  thus  contribute  materially 
to  their  ability  to  meet  the  interest  and  principal  of  their 
mortgage  obligations.  Even  the  vast  wealth  centered  in 
commerce,  trade,  transportation  and  industrial  enterprises 

—  through  the  expansion  of  these  great  fields  of  human 
endeavor — 'becomes  a  factor  in  augmenting  the  value  of 
farm  lands  even  in  the  newest  and  remotest  States  of  the 
Union.  So  the  improvement  in  the  means  of  transporta- 
tion, communication,  and  education  within  the  reach  of 
our  farming  population,  and  every  advance  in  social  uplift 
of  our  people  engaged  in  agriculture  and  every  improve- 
ment which  adds  to  the  attractiveness  of  the  farm,  or  to 
the  health  and  happiness  of  the  farmers  and  their  families 

—  all  are  factors  which  will  work  unceasingly  to  give  to 
farm  mortgages  and  bonds  issued  thereon  safety,  security 
and  stability.  All  these  mighty  forces  are  working  for  no 
particular  section  of  our  country  —  but  reach  out  to  every 
State,  to  every  section  of  the  country.  Agricultural  pros- 
perity can  not  be  and  will  not  be  confined  to  the  East  or 
to  the  West,  to  the  North  or  to  the  Soutli.  Seasons  will 
change.  Climate,  soil,  local  conditions  will  vary  some- 
what. But  there  is  safety  and  security  in  every  State. 
All  are  entitled  to  equal  advantages,  opportunities  and 
privileges.  All  our  farmers,  regardless  of  the  State  in 
which  they  reside,  are  entitled  to  the  same  credit  facilities, 
at  the  same  interest  charge.     The  national  government  can 


Interest  171 

not  justly  establish  a  system  of  land  credit  which  does  not 
give  to  all  the  same  credit  and  a  like  rate  of  interest.  Any 
system  that  does  not  provide  for  equality  in  the  extent  of 
the  credit,  and  in  the  interest  charge  for  such  credit,  is 
unfair,  unjust,  discriminatory  and  sectional. 


CHAPTER  XII 

GOVERNMENT    AID 

Government  aid  was  the  rock  upon  which  rural-credit 
legislation  stranded  in  the  Sixty-third  Congress.  It  was 
the  proposition  upon  which  the  administration  forces  di- 
vided. It  was  the  one  big  bone  of  contention  which  agi- 
tated the  whole  country.  It  was  not  settled.  It  will  not 
be  settled  until  the  final  vote  has  been  taken  in  Congress 
and  the  Chief  Executive  of  the  nation  shall  have  indicated 
his  approval  or  disapproval.  It  is  of  the  highest  im- 
portance that  this  question  shall  be  settled  right.  Too 
much  attention  can  not  be  given  to  it.  The  subject  can 
not  be  studied  too  thoroughly.  In  brief,  all  those  in  Con- 
gress, or  out  of  Congress,  should  bring  to  the  considera- 
tion of  the  question  the  most  careful,  painstaking,  con- 
scientious and  patriotic  investigation,  with  a  view  to  reach- 
ing a  conclusion  that  will  be  fair  to  the  farmers,  and  just 
to  the  non-farmers,  and  that  will  give  to  agriculture  the 
proper  aid,  without  injury  to  other  industries,  and  that, 
in  the  end,  will  contribute  most  largely  to  the  prosperity 
of  all  classes,  and  add  the  greatest  strength  to  the  nation. 

The  subject  will  be  discussed  under  the  following  heads : 

I.  Brief  history  of  controversy  in  Congress. 

II.  Views  of  the  United  States  Commission,  the  Ameri- 
can Commission,  the  Sub-committees  on  Eural  Credits,  the 
Senate  Committee,  and  Members  of  Congress. 

III.  The  Federal  government  should  render  all  the 
aid  that  is  necessary  to  provide  agriculture  with  adequate 
credit  at  a  low  rate  of  interest. 

172 


Government  Aid  173 


Brief  History  of  Government-aid  Controversy  in  Congress. 

There  is  no  doubt  that  at  one  time  the  leaders  in  the 
Sixty-third  Congress,  in  good  faith,  intended  to  enact 
rural-credit  legislation  before  the  Congress  adjourned.  A 
controversy  arose  over  the  question  of  what  should  be  the 
character  of  aid  rendered  by  the  national  government.  The 
great  majority  of  rural-credit  bills  that  had  been  intro- 
duced in  both  Houses  of  Congress  provided  for  the  use  of 
either  the  funds  or  the  credit  of  the  national  government 
to  promote  the  proposed  system  of  farm  credits.  In  fact, 
the  Commission  Bill  was  regarded  as  the  one  measure  which 
provided  for  no  government  aid  —  either  in  the  use  of  its 
credit  or  money.  That  the  provisions  of  this  bill  repre- 
sented the  view  of  the  administration  in  power,  in  the 
executive  branch  of  the  Government,  is  shown  by  the 
declaration  of  President  Wilson  in  one  of  his  messages 
to  Congress  and  by  the  statements  in  the  annual  report, 
1914,  of  Mr.  Houston,  the  Secretary  of  Agriculture.  On 
the  2d  day  of  December,  1913,  the  President  in  a  message 
read  before  Congress,  in  a  joint  session  of  both  Houses, 
said: 

"  The  farmers,  of  course,  ask  and  should  be  given  no 
special  privilege,  such  as  extending  to  them  the  credit  of 
the  Government  itself.  What  they  need  and  should  obtain 
is  legislation  which  will  make  their  own  abundant  and  sub- 
stantial credit  resources  available  as  a  foundation  for 
joint,  concerted  local  action  in  their  own  behalf  in  get- 
ting the  capital  they  must  use.  It  is  to  this  we  should 
now  address  ourselves.'^ 

In  his  annual  report  for  1914,  Mr.  Houston,  the  Secre- 
tary of  Agriculture,  said: 

"  The  chief  difference  of  opinion  arises  over  whether 
there  should  be  special  aid  furnished  by  the  Government. 


174  Land  Credits 

There  seems  to  be  no  emergency  which  requires  or  Justi- 
fies government  assistance  to  the  farmers  directly  through 
the  use  of  the  government  cash  or  the  G-overnment's 
credit." 

Apparently  there  was  a  deadlock  between  the  Commis- 
sion and  the  Sub-committees  of  the  two  Houses.  The 
Sub-committee  Bill,  emanating  from  these  two  sub-com- 
mittees, contained  two  provisions  which,  under  certain 
conditions,  permitted  the  use  of  the  government  funds,  to 
insure  the  success  of  the  system.  Section  13  of  the  Sub- 
committee Bill  provided  that  in  case  the  public  failed  to 
subscribe  for  all  the  stock  of  the  Federal  land  banks  the 
Secretary  of  the  Treasury,  for  the  United  States,  should 
subscribe  the  balance.  Section  30  authorized  the  Secre- 
tary of  the  Treasury,  under  the  approval  of  the  Federal 
Keserve  Board,  to  purchase  land-mortgage  bonds,  issued 
by  the  Federal  land  banks,  in  an  amount  not  to  exceed 
$50,000,000  annually. 

The  controversy  came  to  the  floor  of  the  House.  On 
the  19th  day  of  December,  1914,  Hon.  Robert  J.  Bulkley, 
of  Ohio,  chairman  of  the  Sub-committee,  delivered  a 
speech  in  the  House,  defending  the  principle  of  Federal 
aid  as  provided  in  the  Sub-committee  Bill.  (Congres- 
sional Record,   December  21,   1914,   page  499.) 

On  the  31st  day  of  December,  1914,  and  on  the  2nd  day 
of  January,  1915,  Hon.  Ralph  A.  Moss,  of  Indiana,  vice- 
president  of  the  Commission,  delivered  in  the  House  a 
speech,  opposing  the  use  of  the  Government's  credit  or 
its  funds  in  establishing  our  system  of  land  credit.^  Ap- 
parently the  sub-committee  of  the  Senate  Banking  and 
Currency  Committee  decided  to  abandon  the  government- 
aid  feature  of  the  Senate  Sub-committee  Bill,  as  Senator 
Hollis,  the  chairman  of  the  sub-committee,  on  the  4th  day 
of  February,  1915,  re-introduced  the  Sub-committee  Bill 
without  the  government-aid  provision  as  found  in  Section 

1  Congressional  Eecord,  p.  944,  January  2,  1915. 


Government  Aid  ly^ 

30.  This  was  the  situation  on  February  25,  1915,  when 
the  McCumber  Bill  was  added  as  an  amendment,  known 
as  amendment  "89,"  to  the  A^-icultural  Appropriation 
Bill.  On  the  next  day  the  Senate  Committee  on  Finance 
reported  the  Hollis  Bill,  referred  to  herein  as  the  Senate 
Committee  Bill,  to  the  Senate. 

The  McCumber  amendment  to  the  Agricultural  Appro- 
priation Bill  went  to  the  Committee  on  Agriculture  of  the 
House,  late  Saturday  evening.  The  Committee  met  early 
on  the  Monday  morning  following.  This  was  March  1st. 
The  House  Committee  on  Agriculture  had  given  no  con- 
sideration to  rural-credit  bills.  The  bills  on  that  subject, 
under  the  rules  of  the  House,  go  to  the  Committee  on 
Banking  and  Currency.  The  Sixty-third  Congress  would 
expire  by  constitutional  limitation  at  noon  on  March  4th. 
The  Agricultural  Appropriation  Bill  had  come  back  to  the 
House  from  the  Senate  with  nearly  100  amendments,  in- 
cluding the  McCumber  amendment.  These  amendments 
must  all  be  considered  by  the  conference  committee  to  be 
appointed  by  the  two  Houses,  and  the  report  be  considered 
and  adopted  by  both  Houses  before  12  o'clock  meridian, 
March  4th.  Evidently  the  Committee  on  Agriculture  could 
give  no  adequate  or  serious  consideration  to  the  McCumber 
amendment  or  proposed  substitutes  therefor.  The  Senate 
Committee  Bill,  without  the  government-aid  feature  as 
provided  in  Section  30,  had  the  endorsement  of  the  Senate 
Banking  and  Currency  Committee.  With  this  provision 
omitted,  the  Commission  Bill  and  the  Hollis  Bill  did  not 
materially  differ  —  at  least  they  both  provided  for  the 
formation  of  a  system  of  privately  owned,  dividend-paying, 
profit-sharing  land  banks,  as  the  institutions  to  provide 
American  agriculture  with  credit. 

The  Committee  on  Agriculture  in  its  report  to  the  House 
proposed  as  a  substitute  for  the  McCumber  amendment 
the  bill  which  had  been  reported  by  the  Senate  Committee, 
which  embodied  the  main  features  of  both  the  Commission 


176  Land  Credits 

Bill  and  tlie  Senate  Committee  Bill,  which  was  the  same 
as  the  original  Sub-committee  Bill  with  the  "  government- 
aid  "  features  eliminated.  Such  a  bill  would  naturally 
have  the  support  in  the  House  of  those  who  favored  the 
Commission  Bill  as  well  as  those  who  favored  the  Sub- 
committee Bill  —  with  government-aid  features  eliminated. 
The  report  of  the  Committee  on  Agriculture  came  up  in 
the  House  for  consideration  shortly  after  12  o'clock  noon 
on  March  1st,  1915.  Under  a  unanimous  consent  agree- 
ment the  general  debate  on  the  Committee  substitute 
was  limited  to  two  hours'  duration.  After  the  general 
debate,  the  proposition  was  taken  up  under  what  is  known 
as  the  "five-minute  rule,"  when  the  bill  was  read,  subject 
to  amendment  with  speeches  limited  to  five  minutes,  un- 
less by  unanimous  consent  additional  time  was  granted. 
The  discussion  in  the  House  centered  around  the  question 
of  "government  aid."  The  Committee  report  proposed 
to  substitute  for  the  McCumber  Bill  the  Senate  Committee 
Bill  without  any  "  government-aid  "  feature.  Mr.  Bulk- 
ley,  of  Ohio,  proposed  to  amend  the  Committee  report  by 
inserting  the  "  government-aid "  proposition  in  the  orig- 
inal Sub-committee  Bill,  which  authorized  the  Secretary 
of  the  Treasury,  with  the  approval  of  the  Federal  Eeserve 
Board,  to  buy  mortgage  bonds  not  to  exceed  fifty  million 
dollars'  worth  annually.  This  brought  the  question  of 
"  government  aid "  directly  before  the  House.  The  vote 
on  the  Bulkley  amendment  stood  157  ayes  and  44  noes. 
(Congressional  Record,  March  1,  1915,  p.  5611.)  Fur- 
ther on  in  the  proceedings,  Mr.  Wingo,  of  Arkansas,  pre- 
sented a  motion  to  recommit,  with  instructions  to  report 
the  McCumber  amendment  in  lieu  of  the  Committee  propo- 
sition. The  motion  to  recommit  was  lost  on  a  call  of 
the  ayes  and  nays,  with  a  vote  of  89  yeas  and  238  nays, 
95  not  voting.  The  votes  show  that  a  large  majority  of 
the  Members  of  the  House  were  in  favor  of  some  form  of 
"  government  aid "  in  establishing  a  rural-credit  system. 


Government  Aid  177 

The  whole  matter  went  to  the  Committee  on  Conference. 
The  Conference  Committee  agreed  to  a  report  which  elimi- 
nated both  the  McCumber  amendment  and  the  House  sub- 
stitute therefor,  and  in  lieu  thereof  authorized  the  ap- 
pointment of  a  joint  committee  on  Eural  Credits,  in  the 
following  language:  (Congressional  Eecord,  March  3, 
1915,  p.  6015.) 

"  That  there  is  constituted  a  joint  committee  of  the 
Senate  and  House  of  Eepresentatives,  to  consist  of  the 
chairman  of  the  Senate  Committee  on  Agriculture  and 
Forestry,  the  chairman  of  the  House  Committee  on  Agri- 
culture, and  the  Chairman  of  the  Committee  on  Banking 
and  Currency  of  the  two  Houses,  and  two  other  members 
of  each  of  said  committees,  to  be  designated  by  the  chair- 
men of  the  respective  committees,  and  it  shall  be  the  duty 
of  said  joint  committee  to  prepare,  after  such  investiga- 
tion as  may  be  deemed  necessary,  a  report  to  the  Congress 
on  or  before  January  1,  1916,  a  bill  or  bills  providing 
for  the  establishment  of  a  system  of  rural  credits  adapted 
to  American  needs  and  conditions.  The  sum  of  $10,000 
is  hereby  appropriated,  the  same  to  be  immediately  avail- 
able, out  of  any  funds  in  the  Treasury  not  otherwise 
appropriated,  to  defray  all  necessary  expenses  of  said  joint 
committee,  the  payment  of  said  expenses  to  be  made  upon 
vouchers  approved  by  the  chairman  of  said  joint  commit- 
tee, who  shall  be  selected  by  the  committee." 

Kg  separate  vote  was  had  on  this  proposition.  On  final 
passage  of  the  Agricultural  Appropriation  Bill  on  which 
the  foregoing  proposition  was  pending,  the  vote  stood  230 
yeas,  103  nays,  98  not  voting.^ 

II 

Views  of  the  United  States  Commission,  the  American 
Commission,    the    Sub-committee   on   Eural    Credits,   the 


1  Congressional  Record,  March  3,   1915,  pp.  6017,  6018. 


178  Land  Credits 

Senate  Committee,  and  Members  of  Congress  as  expressed 
in  the  Debate  on  the  McCumber  Amendment. 

1.  The  United  States  Commission  (appointed  hy  the 
President,  under  Act  of  Congress)  in  its  report,  S.  Doc. 
380,  Part  II,  page  22,  63rd  Congress,  says: 

"  There  is  room  for  an  honest  difference  of  opinion  as 
to  the  question  of  state  aid,  if  only  European  experience 
is  consulted.  A  few  illustrations  will  suffice.  In  Aus- 
tria, the  mortgage  banks  are  state  or  provincial  institutions 
whose  bonds  are  guaranteed  by  the  State  or  province 
chartering  the  banks.  In  Hungary,  there  is  a  compro- 
mise between  these  two  principles,  the  State  advancing  a 
part  of  the  foundation  capital,  while  founders'  shares  were 
sold  to  secure  additional  capital.  The  control  of  the  in- 
stitution rests  between  those  who  contributed  the  found- 
ers' shares  and  those  who  make  the  loans.  In  France,  the 
State  gave  a  subsidy  of  $2,000,000  to  the  Credit  Foncier, 
and  gave  it  a  monopoly  of  the  long-term  mortgage  business. 
The  remainder  of  the  capital,  however,  has  been  raised  by* 
the  sale  of  stock,  and  in  all  essential  features  this  bank 
is  a  private  joint-stock  institution  with  certain  special 
privileges  granted  by  law. 

"  In  every  instance  in  Europe  where  government  capital 
has  been  granted  to  establish  mortgage  credit,  the  results 
have  been  favorable  to  the  agricultural  interests  of  that 
nation.  It  is  our  opinion  that  such  aid  should  not  be 
extended  in  the  United  States.  Our  farm  property  is  com- 
puted to  be  worth  $40,000,000,000,  and  is  rapidly  increas- 
ing in  value.  Surely  this  vast  property,  whose  value  is 
as  stable  as  the  foundations  of  our  government,  is  suffi- 
cient to  attract  capital  in  ample  volume  to  improve  and 
cultivate  its  area,  without  subvention  from  our  govern- 
ment treasury.  The  idea  of  Federal  aid  is  always  attrac- 
tive and  commands  many  able  and  earnest  advocates;  but 
self-help  should  be  the  motto  of  our  new  agriculture.  If 
given  the  opportunity,   under   liberal  enactment  of  law, 


Government  Aid  179 

the  savings  of  our  nation  will  gladly  invest  in  this  safe 
field  and  relieve  the  Federal  Treasury  of  any  necessity  to 
finance  the  project.  It  is  wise  legislation,  rather  than 
liberal  appropriations  or  loans,  which  rural  credit  mostly 
needs  at  our  hands." 

2.  The  American  Commission  (appointed  under  aus- 
pices of  the  Southern  Commercial  Congress)  in  its  report, 
8.  Doc.  261,  Part  I,  page  13,  63rd  Congress,  says: 

"Nearly  all  European  governments  do  assist  farmers  in 
obtaining  credit,  and  in  some  countries,  like  France,  the 
amount  of  money  loaned  directly  by  the  government  for 
farming  purposes  is  very  great,  indeed.  Some  countries 
have  gone  further  than  others,  but  nearly  all  the  European 
countries  give  financial  assistance  in  some  form. 

"  It  has  been  shown  that  government  aid  in  democratic 
Australia  is  a  common  practice,  and  there  are  strong  ad- 
vocates of  government  assistance  in  the  United  States. 
Why  should  not  the  Government  help?  Here  is  a  great 
business,  fundamental  to  the  nation's  prosperity,  in  which 
combination  is  difficult,  a  business  that  has  special  needs. 
Now,  why  should  not  the  Government  step  in  and  con- 
tribute liberally  or  lend  its  credit? 

"  Nevertheless,  it  is  the  opinion  of  the  Commission  that 
our  American  problem  of  rural  credit  should  be  worked  out 
without  government  aid. 

"  It  is  perhaps  true  that  the  world  is  short  of  capital. 
But  it  is  believed  that  capital  awaits  investment  in  farm 
lands  as  freely  as  in  other  fields,  provided  the  security  is 
good  and  the  means  of  investment  are  made  easy.  On 
the  other  hand,  if  there  is  not  private  capital  in  sufficient 
qualities  the  only  way  the  Government  can  get  the  needed 
capital  is  either  by  taxing  all  the  people  in  order  to  get 
capital  for  farming,  or  else  by  issuing  bonds  that  some- 
time later  must  be  paid  by  all  the  people.  Of  course  there 
are  conditions  under  which  the  Government  can  guaran- 
tee bonds  that  are  issued  with  farm  property  as  security. 


i8o  Land  Credits 

But  this  is  no  great  advantage,  because  under  a  wise  sys- 
tem of  credit  the  land  itself  is  the  very  best  security  for 
borrowed  money,  and  the  safest  system  is  the  one  that 
stands  on  its  own  feet." 

S.  The  Senate  Committee  on  Banling  and  Currency 
in  its  report  on  8.  55^2,  Feiruary  19,  1915,  Report  101^8, 
63rd  Congress,  says: 

"  There  are  two  main  schools  of  thought  on  this  subject, 
the  radical  and  the  conservative.  The  radical  would  have 
the  Federal  government  borrow  money  on  its  bonds,  and 
make  loans  directly  to  the  farmer  at  5  per  cent.,  or  even 
less.  This  is  the  extreme  of  so-called  government  aid. 
The  conservative  would  provide  a  system  of  land  banks, 
bringing  the  farmer  and  the  investor  together  for  their 
mutual  profit  and  advantage,  but  providing  no  Govern- 
ment aid. 

"  The  pending  bill  takes  a  middle  ground  between  these 
two  views,  avoiding  government  loans  but  exercising  strict 
supervision  of  the  system,  and  giving  indirect  aid  of  a 
substantial  character.  The  bill  borrows  from  the  Euro- 
pean system  such  features  as  are  adaptable  to  American 
conditions,  adds  certain  provisions  which  are  believed  to 
be  new,  strikes  a  fair  medium  between  the  radical  and  the 
conservative,  and  brings  the  whole  into  harmonious  rela- 
tions with  the  Federal  Eeserve  Act." 

4-  Hon.  Robert  J.  Bidkley,  a  Representative  from  the 
State  of  Ohio,  Chairman  of  the  Sub-committee  on  Rural 
Credits  of  the  House  Committee  on  Banking  and  Cur- 
rency, in  a  speech  in  the  House,  December  19,  191  Jf  {Con- 
gressional Record,  63rd  Congress,  December  21,  1914, 
page  499),  said: 

"  The  use  of  the  public  credit  to  support  farm-mortgage 
loans  is  justified  by  the  experience  of  all  the  nations  which 
have  established  land-mortgage  systems  in  the  interest  of 
the  small  borrower,  and  those  countries  comprise  the 
greater  part  of  the  civilized  world. 


Government  Aid  l8i 

"Without  such  government  support  as  is  provided  by 
our  bill  it  is  fair  to  predict  that  the  land-credit  system 
will  be  slow  and  uncertain  in  its  beginnings  and  incapable 
of  giving  substantial  relief  for  many  years  to  come;  it  is 
fair  to  say  that  success  is  doubtful  and  that  there  is  not 
at  hand  in  all  the  history  of  the  world  a  single  example 
of  the  success  of  a  land-mortgage  system  on  the  long- 
time amortization  plan  for  the  benefit  of  small  borrowers 
which  has  not  had  public  financial  aid." 

5.  Below  will  he  found  excerpts  from  retnarlcs  on  rural 
credits  in  the  House  of  Representatives,  in  the  debate  on 
the  McCumher  amendment  to  the  Agricultural  Appropria- 
tion Bill. 

Hon.  T.  H.  Caraway,  op  Arkansas  : 

"  I  hope  a  bill  introduced  by  me  on  tliis  subject,  and 
which  I  shall  ofi^er  here  as  an  amendment,  may  prevail. 
If  it  does  not,  I  shall  vote  for  the  Senate  amendment  89, 
known  as  the  McCumber  amendment.  If  we  concur  in 
that  amendment  the  conf^ees  can  not  lay  their  hands  on 
it,  and  we  get  a  beginning.  We  have  pledged  this  Gov- 
ernment to  aid  a  farm-credit  system.  Another  Congress 
can  perfect  it.  It  would  not  dare  repeal  it.  There- 
fore I  shall,  if  my  amendment  does  not  succeed,  support 
the  McCumber  amendment.  I  shall  do  this  because  I  want 
to  serve  my  people  more  than  I  desire  to  be  partisan.  All 
who  want  to  aid  the  farmer  must  forget  the  origin  of  the 
amendment  and  support  the  system.  I  am  willing  to 
do  so." 

Hon.  Ellsworth  E.  Bathrick,  of  Ohio  : 

"  Now,  the  McCumber  amendment  to  the  Agricultural 
Bill  as  it  cam.e  from  the  Senate  will  give  every  farmer  in 
this  country  5  per  cent,  money,  and  it  is  more  nearly 
workable  and  more  nearly  perfect  than  any  other  bill  that 
has  been  presented  to  you.  I  know  it  is  not  perfect,  and 
I  know  some  things  in  it  should  be  changed ;  and  if  I  have 


182  Land  Credits 

the  opportunity  I  shall  offer  as  an  amendment  to  the  sub- 
stitute of  the  gentleman  from  South  Carolina,  a  revised 
McCumber  Bill.  JSTow,  I  have  no  pride  of  opinion  in  that, 
but  I  believe  if  that  is  voted  up  and  we  can  not  vote  up 
the  McCumber  amendment,  it  should  be  voted  in  this 
afternoon,  and  I  will  see  that  most  of  you  get  a  copy  of 
that  revised  McCumber  Bill." 

Hon.  Dudley  Doolittle,  of  Kansas  : 

"  I  am  quite  certain  the  so-called  Hollis-Moss-Fletcher 
amendment  which  the  committee  has  reported  is  much  bet- 
ter than  no  bill  at  all,  but  in  my  opinion,  it  lacks  the 
fundamental  principle  of  sufficient  government  aid  to 
make  it  an  instrument  that  will  lower  materially  interest 
rates  to  borrowers,  and  it  is  complicated.  It  is  primarily 
to  be  financed  by  private  funds,  and  that  means  profit  to 
the  man  who  has  the  private  funds  to  invest  rather  than  a 
reduction  in  the  interest  the  borrower  must  pay.  Private 
capital  invests  where  the  rate  of  return  and  the  security 
is  the  most  advantageous ;  public  or  government  funds  take 
the  larger  view  and  invest,  when  properly  directed,  where 
most  needed,  properly  safeguarded,  of  course,  and  where 
the  welfare  of  the  borrower  is  not  ignored." 

Hon.  William  Schley  Howaed,  of  Georgia  : 

"Now  we  have  here  the  Hollis  Bill.  I  do  not  believe 
these  good  gentlemen  intend  to  hand  the  farmers  a  stone 
when  they  ask  for  bread,  but  after  eight  hours'  study  of 
this  bill  —  that  is  all  the  time  I  have  had  to  put  onto  it  — 
I  do  not  believe  that  the  bill  is  going  to  help  the  farmer. 
I  do  not  believe  it  is  going  to  do  anything  else  on  this 
earth  except  to  allow  a  lot  of  people  who  have  got  money 
to  organize  these  banks  in  the  different  localities  in  this 
countr}'  and  to  issue  bonds  or  debentures  and  try  to  sell 
them,  and  drag  the  farmers'  securities  around  through  the 
country,  and  I  do  not  believe  that  the  rate  of  interest  is 
going  to  redound  to  the  benefit  of  the  farmer.  I  am 
going  to  be  very  frank  about  this  matter." 


Government  Aid  183 

Hon".  James  C.  McLaughlin,  op  Michigan: 

"  A  cry  is  jaised  against  Federal  aid,  and  some  gentle- 
men —  a  great  man}^,  I  believe  —  stand  aghast  at  the  idea 
that  any  Federal  money  shall  be  used  for  the  purpose  of 
assisting  in  the  organization  of  these  banks  or  be  used  by 
them  in  making  loans  upon  farm  property.  I  wish  to 
say  to  my  associates  on  this  side  of  the  House  that  if  they 
are  opposed  to  the  idea  of  Federal  aid  they  would  better 
change  or  modify  their  national  platform,  because  the 
platform  has  declared  in  favor  of  the  organization  and  the 
supervision  of  banks  and  organizations  by  which  the  farmer 
of  the  country  may  obtain  cheap  money.  But  in  my 
judgment,  formed  after  a  great  deal  of  attention  to  the 
manner  in  which  organizations  of  this  kind  are  effected 
and  operated  in  the  first  instance,  they  can  not  be  organized 
and  started  successfully  on  their  work  without  Federal  aid." 

Hon.  Edmund  Platt,  of  New  York: 

"  The  bills  that  the  farmers'  organizations  have  in- 
dorsed are  bills  like  the  Bathrick  Bill  containing  govern- 
ment aid  from  the  sale  of  government  bonds.  Some  have 
indorsed  the  Bulkley  Bill  and  a  few  the  Moss  Bill.  The 
Hollis  Bill  does  not  give  them  what  they  are  asking.  It 
will  not  do  what  the  farmers  want,  and  if  we  should  pass 
this  hybrid  Hollis  Bill  they  will  all  be  dissatisfied  with 
it.  It  is  a  mere  makeshift  compromise,  patched  up  at 
the  last  moment.  I  do  not  see  why  any  man  should  vote 
for  it,  whether  he  believes  in  government  aid  or  does  not 
believe  in  government  aid.  If  he  believes  in  government 
aid,  he  ought  to  vote  for  the  McCumber  amendment  just 
as  it  comes  over  from  the  Senate.  The  McCumber  propo- 
sition is  at  least  simple  and  easily  understood  —  money 
from  the  United  States  Treasury.  The  Hollis  Bill  is 
complicated.  It  provides  for  three  or  four  kinds  of  in- 
stitutions and  two  different  sets  of  bonds,  but  will  satisfy 
nobody." 


184  Land  Credits 

Hon,  J.  W.  Eagsdale,  of  South  Carolina: 

"  I  want  to  say,  Mr.  Chairman,  that  I  do  not  care 
where  a  bill  comes  from  —  I  do  not  care  if  it  comes  from 
a  Progressive,  I  do  not  care  if  it  comes  from  a  Eepublican, 
I  do  not  care  if  it  comes  from  a  Democrat  —  if  it  will 
reduce  the  interest  burden  that  the  farmers  and  producers 
of  wealth  in  this  country,  upon  whom  we  are  dependent, 
pay,  then  I  am  for  that  bill,  no  matter  what  its  effect 
on  any  party.  (Applause.)  I  believe  that  at  this  time 
the  Bulkley-Hollis  Bill  is  the  best  bill  to  adopt,  because 
I  do  not  believe  that  the  Hollis  Bill  is  worth  the  paper 
on  which  it  is  written.  I  do  not  believe  that  it  gives 
the  best  thoughts  of  the  distinguished  Senator  whose  name 
it  bears,  and  I  do  not  think  that  he  believes  in  it.  I  do 
not  believe  that  he  felt  in  his  own  mind  that  it  is  in  the 
real  interest  of  the  farmers  of  this  country/' 

Hon.  Willis  J.  Hulings,  of  Pennsylvania  : 

"  There  are  two  lines  of  thought  that  are  distinctly 
marked  out  upon  this  subject,  and  one  is  whether  the  Gov- 
ernment shall  give  its  aid  to  this  great  industry,  or  whether 
the  farmer  who  is  needing  money,  who  is  in  debt,  will  con- 
tribute the  funds  with  which  to  organize  banks.  The  bill 
that  is  immediately  under  discussion  now  —  the  Hollis 
Bill  —  in  my  opinion,  simply  provides  a  great  piece  of 
machinery,  starting  out  with  a  $12,000  salary  for  a  com- 
missioner, providing  for  the  employment  of  an  army  of 
employees,  for  plate  glass,  burglar-proof  safes,  and  bank- 
ing establishments,  and  the  farmer  is  to  foot  the  bill.  It 
has  no  other  purpose  than  to  drive  the  great  volume  of 
farm  loans  into  the  control  of  the  banking  interest,  and 
even  then  insists  that  the  farmer,  now  so  heavily  in  debt, 
shall  furnish  the  money  to  start  the  bank.  It  simply  sug- 
gests to  the  farmer  that  by  pulling  on  his  boot  straps  he 
can  lift  himself  out  of  debt." 


Government  Aid  1815 

Hon.  Everis  A.  Hayes,  of  California  : 

"  In  the  first  place,  let  me  speak  of  the  so-called  McCum- 
ber  amendment.  The  McCumber  amendment,  if  I  under- 
stand anything  about  the  Constitution,  would  be,  as  my 
friend  from  Georgia  has  said  respecting  the  Hollis  Bill, 
not  worth  the  paper  it  is  WTitten  on.  I  would  like  to 
know  under  what  grant  of  power  of  the  Federal  Constitu- 
tion Members  of  this  House  can  find  authority  for  putting 
the  Government  of  the  United  States  into  the  loaning  busi- 
ness—  under  what  grant  of  power  we  are  going  to  give 
the  farmers,  a  single  class  in  this  country,  an  axe  and 
tell  them  to  go  ahead  and  knock  down  the  doors  of  the 
Treasury  and  help  themselves,  for  that  is  about  what  this 
McCumber  amendment  means." 

Hon.  Joe  H.  Eagle,  of  Texas  : 

"  Mr.  Chairman,  with  reference  to  rural  credits,  there 
are  two  thoughts  running  through  the  country,  and  these 
are  the  same  two  thoughts  running  through  the  minds  of 
the  Members  of  this  Chamber.  One  is  the  thought  that 
the  farmers  ought  to  continue  to  pay  for  the  use  of  money 
the  enormous  and  prohibitive  rates  of  interest  at  present 
charged  against  them  on  their  mortgages,  with  abstract 
charges,  with  commission  charges,  and  with  renewal 
charges,  which  together  constitute  prohibitive  rates,  so  as 
to  keep  the  producing  masses  perpetually  in  bondage  to 
the  financial  oligarchy  of  this  country. 

"Another  is  the  thought  that  the  farmer  ought  to 
have,  when  he  has  perfect  security,  the  facility  of  obtain- 
ing a  loan  for  his  use  and  benefit  by  the  aid  of  the  Fed- 
eral government,  so  that  he  himself  may  retain  his  annual 
increase  of  wealth  and  not  be  longer  compelled  to  sacrifice 
it  by  excessive  interest  charge  for  the  money  he  is  required 
to  borrow.     I  earnestly  share  the  latter  view." 


1 86  Land  Credits 

Hox.  Wakken  Worth  Bailey,  of  Pexnsyltania  : 

•■  But  Mr.  Cliairruan.  there  is  a  question  in  my  mind 
whether  the  legislation  here  proposed  is  desirable  from  any 
standpoint.  It  certainly  can  not  be  desirable  from  the 
standpoint  of  the  tenant  farmer  or  from  that  of  the  farm 
laborer.  It  can  not  possibly  help  either.  On  the  con- 
trary, it  mtist  infallibly  make  the  lot  of  both  a  little  harder, 
for  if  this  legislation  shall  accomplish  anything  it  will 
stimulate  speculation  in  fajni  land,  and  speculation  in 
farm  land  will  mean  higher  prices  for  it,  higher  rents  de- 
manded for  its  use,  a  lousier  and  more  difficult  strussle  on 
the  part  of  the  landless  to  obtain  a  solid  footing  on  the 
soil." 

Hox.  J.  B.  Thompson,  of  Oklahoma: 

"  The  Senate  on  last  Thursday  attached  to  the  Asrricul- 
tural  Appropriation  Bill  what  is  known  as  the  McCumber 
amendment.  It  is  not  all  that  I  would  wish  it  to  be, 
but  it  is  a  long  step  in  the  right  direction,  and  will  re- 
sult, in  my  judgment,  in  reducing  the  interest  rates  that 
our  agricultural  classes  are  compelled  to  pay.  It  is  simple. 
There  is  no  complex  law  or  machinery  to  be  put  in  oper- 
ation, no  set  of  red-tape  rules  and  regulations  whereby  the 
farmer  would  be  enmeshed  and  disabled  from  procuring 
a  loan.  It  extends  direct  soyernment  aid  to  the  agricul- 
tural  and  producing  classes  of  the  country  the  same  as  the 
Goyernment  has  extended  its  aid  to  the  conmiercial  inter- 
ests of  the  country  in  the  Federal  Eeserye  Act,  and  it  has 
since  the  foundation  of  the  Goyernment  extended  direct 
aid  to  practically  eyery  other  business  except  that  of  the 
farmer.'' 

Hox.  S.  F.  Proutt,  of  Iowa: 

"  Now,  I  can  not  get  myself  to  belieye  that  the  HoUis 
Bill  amounts  to  am-thing.  It  seems  to  me  that  these  fel- 
lows loan  themselves  their  own  money.     If  it  is  in  a  com- 


Government  Aid  187 

munity  where  they  have  no  money,  they  can  not  start  these 
banks  because  they  can  not  find  the  money  to  start  them 
to  run  them.  On  the  other  hand,  if  it  is  in  a  community 
where  they  have  plenty  of  money,  they  do  not  need  this  sys- 
tem at  all.  I  think  that  if  we  ever  do  anything  that  is 
of  real  substantial  benefit  to  the  farming  interests  of  the 
country  we  must  do  for  them  what  we  have  done  for  the 
great  commercial  interests  of  this  countrs'  —  put  the 
strength  and  credit  of  the  Government  behind  it." 

Hon.  Philip  P.  Ca^ipbell,  of  Kansas: 

"  Mr.  Chairman,  the  Federal  Pieserve  Act  places  the  Gov- 
ernment behind  the  commercial  interests  of  the  country, 
issues  and  proposes  to  issue  money  into  the  hundreds  of 
millions,  and  lends  it  to  the  banks  for  commercial  pur- 
poses. Xo  one  should  be  shocked  therefore  when  it  is  pro- 
posed by  the  McCumber  amendment  to  place  the  Govern- 
ment behind  a  plan  that  proposes  to  finance  or  take  up  the 
securities  of  the  farmers  of  this  country  and  enable  them  to 
secure  money  that  is  placed  at  the  disposal  of  agencies  se- 
lected by  the  Government  for  the  convenience  and  benefit 
of  the  farmers.  I  opposed  the  Federal  Eeserve  Act,  but 
that  having  been  forced  upon  the  country  and  having 
made  more  difficult  the  borrowing  of  money  upon  farm 
securities  than  ever  before,  I  shall  vote  for  this  amend- 
ment." 

Hon  p.  D,  Xoeton,  of  Xoeth  Dakota  : 

"  The  Bulkley  Bill  has  some  merit.  But  the  Hollis  Bill 
proposed  as  a  substitute  is,  in  my  judgment,  an  imprac- 
tical proposition.  The  Hollis  Bill  will  bring  no  relief 
whatever  in  this  generation  to  the  farmers  of  this  country. 
(Applause.)  I  know  that  the  McCumber  Bill  is  a  prac- 
tical and  workable  bill.  It  is  not  in  some  important  par- 
ticulars as  I  would  like  to  have  it.  Still  it  is  a  simple 
proposition.  It  involves  the  same  business  principles  that 
are  employed  by  every  great  insurance  company  in  this 
eountrv  to-dav  making  farm  loans." 


1 88  Land   Credits 

Hox.  AsBUET  F.  Levee,  of  South  Caeolixa: 

"  Mr.  Chairman,  in  another  legislative  body,  consisting 
of  ninety-si:x  members,  with  only  six  of  that  membership 
present,  I  am  informed,  a  great  proposition,  involving  an 
entirely  new  departure  in  the  legislation  of  this  country, 
was  inserted  upon  an  appropriation  bill  as  a  rider.  That 
bill  came  to  this  body.  An  attempt  in  a  regular  and 
orderly  way  was  made  to  send  that  bill  to  conference, 
where  the  differences  between  the  two  Houses  might  be 
worked  out  in  an  orderly  and  proper  manner.  That  re- 
quest was  denied.  The  bill  was  sent  to  a  committee  of 
this  House  which  had  no  jurisdiction  over  it  in  the  first 
instance,  and  whose  members,  as  far  as  I  know,  with  the 
exception  of  one,  had  never  given  any  special  considera- 
tion to  the  subject  of  rural  credits,  although  most  of  its 
members  were  in  favor  of  rural-credit  legislation.  That 
committee  was  asked  in  the  course  of  24:  hours  to  present  a 
workable,  reasonable,  and  wise  proposal  to  this  House  and 
to  the  country. 

"  The  Committee  met  this  morning  at  9 :30,  and  con- 
tinued in  serious  and  earnest  deliberation  until  after  1 
o'clock,  when  the  pressure  of  time  made  it  necessary  that 
some  report  to  the  House  should  be  made.  "We  did  what 
I  think  all  sensible  men  under  the  circumstances  would 
have  done.  TVe  reported  back  to  the  House  a  biU  which 
has  been  unanimously  reported  by  the  Committee  on  Bank- 
ing and  Currency  of  the  Senate,  after  long  deliberation, 
covering  more  than  nine  months ;  a  bill  which  contains  the 
essential  features  recommended  by  the  Federal  Eural 
Credit  Commission,  and  a  bill  which  has  been  worked  out 
by  the  Banking  and  Currency  Committee  of  the  Senate." 

HOX.  ROBEET  J.  BULEXEY,  OF  OhIO  : 

"  The  only  propositions  on  which  I  differ  from  the 
Hollis  Bill  as  now  presented  are  broad  questions  of  pol- 
icy, which  every  member  of  this  House  can  understand  in 
short  order. 


Government  Aid  189 

"  The  first  important  amendment,  taking  the  control  of 
the  system  away  from  the  Federal  Eeserve  Board  and 
lodging  it  with  the  Federal  Farm-loan  Board,  is,  I  believe, 
a  good  amendment.     I  am  for  it. 

"  The  second  amendment,  proposing  that  private  banks 
may  be  incorporated  to  compete  with  the  cooperative  asso- 
ciations which  we  propose  to  incorporate,  is  an  amendment 
to  which  I  am  opposed.  I  shall  discuss  it  more  fully 
under  the  five-minute  rule,  as  time  is  short  now. 

"  But  the  fundamental  proposition  that  is  wrong  about 
this  Hollis  Bill  as  it  comes  to  us  from  the  Committee  on 
Agriculture  is  that  it  lacks  section  30.  It  lacks  the  sub- 
stantial government  aid  which  will  be  absolutely  necessary 
to  make  a  success  of  any  rural-credit  system  in  this  country, 
as  has  proved  to  be  the  case  in  every  country  of  the 
world."     (Applause.) 

Hon.  Dudley  M.  Hughes,  of  Georgia  : 

"  I  wish  to  say  this,  Mr.  Chairman,  that  I  favor  the 
Caraway  Bill.  I  shall  vote  for  it  as  a  substitute.  It  is 
a  bill  that  is  short  and  comprehensive,  and  it  covers 
the  entire  ground.  It  is  so  plain  that  you  are  not  forced 
to  employ  an  array  of  counsel  to  have  it  explained. 

"  Mr.  Chairman,  I  am  opposed  to  the  amendment  of  the 
bill  as  presented  by  the  Agricultural  Committee.  When 
the  bill  is  perfected,  as  it  is  said,  I  am  in  favor  of  placing 
dynamite  under  the  bill  with  all  the  amendments  and 
blowing  it  to  atoms,  and  then  agree  to  the  Senate  amend- 
ment, the  McCumber  Bill." 

Hon".  Jefferson  M.  Levy,  of  New  York  : 

"  The  Hollis  Bill,  on  the  contrary,  is  based  on  sound 
economic  principles.  No  one  can  read  it  without  being 
impressed  with  the  care  with  which  it  has  been  drawn 
and  the  knowledge  of  the  subject  on  the  part  of  its  authors. 
The  principle  involved  is  to  provide  the  machinery  by 
which  permanent  capital  of  the  country  may  be  made  avail- 


igo  Land  Credits 

able  to  its  agricultural  interests,  tliat  the  security  which 
the  farmer  can  offer,  which  is  the  best  in  the  world,  may 
be  put  in  negotiable  form  whereby  it  may  be  utilized  by 
investors,  and  the  farmer  thereby  be  benefited  through  a 
broad  and  national  market." 

Hon.  Edward  Keating,  of  Colorado  : 

"  I  refuse  to  play  fast  and  loose  with  my  platform  obli- 
gations. I  believe  the  people  of  this  country  want  a  rural- 
credit  system  which  will  force  a  radical  reduction  in  their 
interest  rates. 

"  More  than  a  year  ago  I  introduced  such  a  bill.  It 
provided  that  we  should  take  the  limit  off  the  amount 
which  an  individual  might  deposit  in  the  Government's 
postal  savings  banks,  and  that  the  money  thus  turned  over 
to  the  Government  should  be  loaned  to  the  farmers  of 
this  country  at  4  per  cent. 

"  In  operation,  the  system  as  suggested  would  be  marvel- 
ously  simple  and  marvelously  effective  as  well." 

Hon.  H.  Robert  Fowler,  of  Illinois  : 

"  Mr.  Chairman,  a  rural-credit  S3^stem  without  the  aid  of 
the  Government  and  Government  control  of  the  stock  is 
nothing  but  Greek  to  the  farmers  of  this  country.  We 
already  have  loaning  organizations  throughout  the  coun- 
try, and  the  farmers  have  been  imposed  upon  by  all  of 
them  to  a  greater  or  less  extent.  What  the  farmer  needs 
is  a  system  with  a  low  rate  of  interest.  Any  system  which 
does  not  begin  with  the  farmer,  stay  with  the  farmer,  and 
end  with  the  farmer  is  not  worth  the  paper  it  is  written 
on.  Any  pussy-footing  around  in  this  House  for  the  pur- 
pose of  devouring  national  aid  to  a  rural-credit  plan  will 
not  be  tolerated  by  the  farmers  and  their  friends." 

Hon.  George  A.  Neely,  of  Kansas: 

"  I  am  glad  that  Senator  McCumber  has  put  this  amend- 
ment on  this  bill.     (Applause.)     I  know  that  it  is  not 


Government  Aid  191 

perfect.  It  looks  to  me  as  though  its  author  had  simply 
called  in  a  stenographer  and  dictated  it  in  an  hour  or 
so  without  giving  the  matter  very  serious  consideration. 
But  with  all  of  its  faults,  with  all  of  its  failures,  and 
with  all  of  its  shortcomings  I  am  ready  to  vote  for  it  and 
really  start  the  ball  of  rural  credits  to  rolling.  (Ap- 
plause.) And  if  you  Democrats  do  not  like  that  kind  of 
hit-and-miss  legislation  why,  in  the  name  of  heaven,  do 
you  not  help  us  to  get  a  committee  organized  for  business 
and  get  a  bill  that  is  decent  ?  " 

Hoist.  J.  Hampton  Moore^  of  Pennsylvania: 

"  But  even  so,  the  farmer  may  yet  ask  to  be  ^  saved 
from  his  friends,'  because  they  are  not  unitedly  represent- 
ing his  case.  Some  of  them  are  proving  too  much.  They 
are  proving  the  farmer  to  be  too  downtrodden,  too  tax-rid- 
den. While  there  is  nonemployment  in  the  great  cities, 
due  to  the  fact  that  we  are  suffering  from  low  tariffs  and 
are  paying  more  for  farm  products  than  we  every  paid 
before,  '  the  poor,  downtrodden  farmer '  is  apparently  pay- 
ing less  for  everything  that  comes  out  of  the  mill  districts 
than  he  ever  did  before.  While  we  are  voting  relief  to 
the  farmer,  we  are  imposing  increased  taxation  upon  the 
man  who  dares  to  start  our  enterprises  in  the  great  cities." 

Hon.  William  Schley  Howard,  of  Georgia: 

"Under  that  proposition,  in  the  first  place,  you  have 
got  forty-eight  different  institutions  issuing  bonds  in  com- 
petition with  one  another,  the  bonds  being  placed  on  the 
market  to  be  sold.  Now,  under  these  conditions  you  can 
not  possibly  put  the  farmers  of  this  country  and  their  se- 
curities on  an  equal  basis.  You  have  got  too  many  banks 
of  issue.  The  gentleman  from  Oklahoma  has  got  the  right 
idea  about  this  banking  proposition.  All  that  the  farmers 
want  is  a  system  by  which  they  can  go  in  and  bring  the  col- 
lective credits  of  all  the  farmers  togetlier  in  one  great  in- 
stitution, and  have  their  debentures  issued  to  the  investing 


192  Land  Credits 

public,  and  those  debentures  be  as  sound  and  good  as  State, 
municipal,  county,  or  railroad  bonds,  and  be  sold  at  as 
low  a  rate  of  interest.  The  trouble  about  this  method  of 
procedure  is  that  you  can  not  explain  any  system.  You 
have  got  no  time  to  deliberate  about  this.  Men  are  vot- 
ing here  to-night  for  measures  that  have  not  amortization 
in  them." 

Hon.  Gael  E.  Mapes,  op  Michigan  : 

"  This  bill  proposes  to  put  the  great  rural-credit  system 
at  its  inception  under  partisan  political  control.  It  ex- 
pressly provides  in  section  3  of  the  bill,  page  50,  that  '  all 
such  attorneys,  experts,  assistants,  clerks,  and  other  em- 
ployees ' —  I  am  giving  the  language  of  the  bill  — '  shall 
be  appointed  without  regard  to^  the  civil-service  law  or 
the  regulations  of  the  Civil  Service  Commission.  A  Fed- 
eral rural-credit  system,  above  every  other,  ought  to  be 
kept  out  of  politics.  One  serious  objection  to  the  amend- 
ment as  reported  by  the  committee  is  that  it  creates  an- 
other board,  it  creates  another  banking  system  without  any 
corresponding  benefits.  It  puts  all  of  the  employees  of 
that  system  under  the  spoils  system.  It  takes  them  out 
of  the  civil  service  by  express  enactment." 

Hon.  Thomas  L.  Eubey,  of  Missouri  : 

"  I  feel  the  same  regret  which  has  been  almost  unani- 
mously expressed  here  this  evening,  that  we  have  had  to 
take  so  short  a  time  for  the  discussion  of  such  an  impor- 
tant measure.  This  bill  was  referred  to  the  Committee  on 
Agriculture,  and  we  gave  to  it  as  much  time  as  we  possibly 
could  under  the  circumstances  surrounding  the  case. 

"  There  are  two  ideas  represented  here  this  evening. 
Some  of  you  gentlemen  are  conscientiously  opposed  to 
government  aid  to  rural  credits.  There  are  those  who 
believe  that  a  rural-credit  bill  without  government  aid  will 
not  amount  to  anything.  I  am  in  favor  and  have  always 
been  in  favor  of  government  aid  in  a  rural-credit  bill, 


Government  Aid  193 

and  I  shall  heartily  support  the  amendment  offered  by 
the  gentleman  from  Ohio." 

Hon".  Egbert  L.  Henry,  op  Texas  : 

"  Mr.  Chairman,  we  have  before  us  to-day  three  concrete 
propositions:  First,  the  McCumber  amendment,  which 
has  come  from  the  Senate,  providing  for  direct  loans  to 
the  farmers.  Second,  the  Hollis  Bill,  which  was  reported 
to  the  Senate  on  last  Saturday.  In  my  judgment,  this 
bill  is  a  makeshift,  an  empty  thing,  a  vacuous  and  spine- 
less piece  of  legislation,  and  will  wilt  and  crumble  like  a 
frogstool  if  government  aid  is  not  placed  behind  it.  (Ap- 
plause.) Second,  this  Hollis  Bill  sets  up  an  alleged  rural- 
credits  system  separate  and  apart  from  any  source  of  gov- 
ernmental aid.  Governmental  aid  is  the  one  essential 
thing  to  make  rural-credits  legislation  a  success  in  this 
country,  as  it  has  proved  to  be  successful  in  every  other 
civilized  country  of  the  world  where  the  government  has 
fostered  and  aided  the  plan.  Third,  the  Bulkley  Bill  is 
before  us,  and  with  Section  30  providing  for  government 
aid,  the  system  is  destined  to  be  a  success  and  will  carry 
genuine  relief  to  the  American  farmers.  Section  30  is 
absolutely  necessary  and  vital  to  give  force  and  effect  to 
the  plan." 

Hon.  J.  Thomas  Heflin,  of  Alabama  : 

"The  McCumber  proposition  that  came  to  this  House 
was  not  considered  by  the  Senate.  There  were  only  a  half 
dozen  Senators  present,  I  understand,  when  it  passed  the 
Senate,  and  when  it  did  come  to  us,  the  Senate,  Democrats 
and  Eepublicans,  who  really  desired  to  have  a  rural-credits 
bill  that  had  something  in  it,  met,  and  the  Committee  on 
Banking  and  Currency  over  there  unanimously,  I  am  told, 
reported  the  bill  that  came  to  us;  and  the  Committee  on 
Agriculture,  of  which  I  am  a  member,  unanimously  re- 
ported that  bill  to  this  House;  and  since  we  have  had  it 
under  consideration  here  I  have  voted  for  amendments  to 


194  Land  Credits 

perfect  it,  and  stated  in  the  committee  that  I  would  vote 
them.  Mr.  Chairman,  we  have  put  upon  it  the  Bulkley 
amendment  which  I  supported.  (Applause.)  It  has  got 
the  government-aid  proposition  in  it,  and  I  want  to  say 
to  gentlemen  here  if  you  vote  for  the  McCumber  substi- 
tute, you  vote  for  something  that  is  doomed,  for  the  Presi- 
dent has  already  said  that  he  would  veto  it,  and  you  know 
that  it  is  useless  to  follow  that  crude  and  unfinished 
measure  further,  because  the  newspapers  this  morning  said 
that  the  President  would  veto  the  McCumber  Bill  in  its 
present  shape.  I  do  not  know.  I  have  not  seen  or  talked 
with  the  President  about  this  matter,  but  I  do  not  believe 
that  he  would  veto  the  Bulkley-HoUis  Bill  as  amended." 

Hon.  Horace  W.  Vaughan,  of  Texas: 

"  I  do  not  wish  to  reiterate,  but  wish  to  say  that  while 
I  favor  legislation  that  will  enable  the  farmers  to  organize 
cooperative  credit  associations  in  their  respective  communi- 
ties throughout  the  country,  and  obtain  such  cooperation 
from  the  Government,  imder  proper  safeguards,  as  may  be 
necessary  to  establish  a  credit  system,  adapted  to  the  busi- 
ness of  farming,  that  will  furnish  credit  facilities  for  the 
man  who  has  no  land  to  mortgage  as  well  as  the  man  who 
has,  I  know  that  making  provision  whereby  landowning 
farmers  may,  by  mortgaging  their  land,  obtain  money  at 
5  per  cent,  will  do  a  great  deal  of  good.  It  will  lower  the 
interest  rate  the  farmers  have  to  pay.  It  will  enable 
many  to  save  homes  from  foreclosure.  It  will  enable  many 
to  acquire  homes." 

Hon.  J.  A.  Feear,  of  Wisconsin: 

"Neither  the  McCumber  Bill  nor  the  Hollis  Bill,  in 
my  Judgment,  are  free  from  defects,  but  this  seems  to  be 
the  only  chance  of  securing  legislation  on  farm  credits,  and 
all  defects  can  be  corrected  by  proper  legislation  as  soon 
as  they  become  manifest.  I  am  not  Avilling  to  vote  for  the 
denatured  Hollis  Bill  that  proposes  an  expensive  machinery 


Government  Aid  195 

and  maintains  a  corps  of  high-priced  officials  in  order  that 
farmers  may  borrow  from  other  farmers  or  borrow  from 
themselves.  Farmers  will  never  avail  themselves  of  a  law 
that  only  resolves  itself  in  a  mass  of  words  used  to  author- 
ize cooperation,  but  which  does  not  carry  any  form  of  gov- 
ernment aid  as  is  proposed  by  the  Bulkley  amendment  or 
the  McCumber  Bill.  I  believe  either  of  these  two  latter 
measures  can  be  made  workable,  and  one  or  the  other 
should  be  passed  by  the  House." 

Hon.  J.  M.  C.  Smith^  of  Michigan  : 

"  Certainly  we  all  have  the  welfare  of  the  farmer  at 
heart.  One  would  think  from  the  remarks  made  here  on 
the  floor  of  the  House  that  there  is  no  one  loved  so  much 
as  he.  -Being  a  farmer  myself  I  may  speak  with  a  little 
more  freedom  than  license  would  otherwise  permit.  What 
I  say  may  be  accepted  or  rejected  if  it  does  not  coincide 
with  the  experience  of  others. 

"  The  Eepublican  national  platform  commits  us  to  a 
rural-farm  credit.  Sooner  or  later  this  legislation  must 
be  enacted  into  law.  The  choice  may  be  between  the  two 
methods  above  referred  to,  and  I  concede  to  the  man  who 
thinks  that  the  Government  should  loan  its  money  directly 
to  the  farmer  his  right  of  opinion  the  same  as  I  myself 
might  prefer  government  security  instead  of  government 
aid.  The  question  being  what  is  the  best  way  to  accom- 
plish the  result. 

"  The  subject  is  one  of  much  interest.  All  the  leading 
nations  of  Europe  have  a  system  of  rural-farm  credits.  A 
commission  was  sent  from  this  country  to  Europe  to  study 
farm  credits,  and  have  reported  in  favor  of  establishing 
rural  credits  here,  and  if  it  will  be  productive  of  the  good 
claimed  for  it  the  date  ought  not  to  be  far  distant  when 
some  system  of  establishing  farm  credits  should  be  enacted 
into  law." 


196  Land  Credits 

Hon",  Gut  T.  Helvering,  of  Kansas  : 

"  There  is  no  future  for  agricultural  credits,  in  my 
opinion,  from  cooperation  without  government  aid,  and 
for  that  reason  I  favor  the  McCumber  plan,  crude  and 
faulty  as  it  is,  and,  failing  in  that,  I  shall  vote  for  the 
Bulkley  Bill,  for,  although  it  falls  far  short  of  giving  to 
the  agriculturists  the  relief  which  they  demand,  and  which 
I  would  like  to  see  them  secure,  nevertheless  it  means  a 
step  in  the  right  direction.  We  have  promised  the  people 
to  give  to  them  legislation  providing  for  rui-al  credits.  At 
the  special  session  held  in  1913  the  Democratic  Eepresen- 
tatives  went  on  record  in  a  promise  to  give  them  such 
legislation  before  this  Congress  adjourned.  I  for  one  am 
not  willing  to  violate  that  pledge,  and  I  prefer  to  vote  for 
this  legislation  now,  and  work  to  perfect  it  in  the  Sixty- 
fourth  Congress,  rather  than  to  aid  in  defeating  all  legis- 
lation at  this  session  and  go  back  to  my  constituents  and 
explain  a  pledge  violation.'^ 

Hon.  Silas  E.  Barton,  of  Nebraska: 

"  Mr.  Chairman,  of  all  the  do-nothing  attempts  of  any 
legislative  body  I  ever  heard  of  has  been  the  efforts  of 
the  Sixty-third  Congress  on  rural  credit.  It  has  created 
two  rural-credit  investigating  bodies;  one  took  a  junket- 
ing trip  to  Europe  and  reported  a  poor  land-mortgage 
bill  and  said  that  personal  credit  could  *best  be  enacted 
by  the  various  State  legislatures.'  The  other  was  com- 
posed of  members  of  the  two  banking  and  currency  com- 
mittees, known  as  the  Eural  Credit  Committee.  It,  too, 
reported  a  land-mortgage  bill,  which  was  an  attempt  to 
bind  the  farmers  to  the  Federal  Eeserve  Board,  a  body 
which  will  for  all  time  to  come  be  dominated  by  bank- 
ers. But  it  failed  to  report  a  bill  on  personal  rural  credit, 
a  system  which  has  been  tried  for  years  in  most  Euro- 
pean countries  and  proven  most  beneficial  to  the  agricul- 
tural interest  of  those  countries." 


Government  Aid  197 

Hon.  Caleb  Powers,  of  Kentucky  : 

"  To-day's  debate,  Mr.  Speaker,  has  vindicated  the  truth 
of  all  I  said  on  the  floor  of  this  House  less  than  one 
month  ago.  I  then  charged  that  the  Democrat  President 
of  these  United  States  had  changed  front  on  rural-credit 
legislation.  Notwithstanding  the  fact  that  the  Democratic 
platform  upon  which  President  Wilson  was  elected,  and 
notwithstanding  all  he  said  in  his  message  to  Congress  on 
December  2,  1913,  I  then  charged  that  the  President  was 
now  opposed  to  putting  the  Federal  government  back  of 
rural  credits.  It  was  not  the  purpose  of  the  Democratic 
party  to  enact  any  rural-credit  legislation  at  this  session 
of  Congress,  if  at  all.  But  thanks  are  due  to  that  stal- 
wart Republican,  Senator  McCumber,  who  put  one  over 
on  his  Democratic  colleagues  in  the  Senate  a  few  days  ago 
and  attached  a  rider  to  the  Agricultural  Bill  the  House 
had  passed  and  sent  over  there.  The  rider  of  Senator  Mc- 
Cumber provided  for  putting  the  Government  back  of 
rural  credits  in  the  interest  of  the  American  farmers." 

Hon.  Otis  T.  Wingo,  of  Arkansas  : 

"  This  gives  the  farmer  no  additional  right,  because 
he  has  a  right  to  use  his  own  money  now.  In  other 
words,  the  Hollis  Bill  in  effect  tells  the  farmer  that  he 
needs  'lifting,'  and  that  the  Federal  government  very 
graciously  extends  to  him  the  privilege  of  lifting  himself 
by  his  own  boot  straps.  I  wish  to  say  to  those  who  pro- 
pose the  Hollis  land-bank  scheme  that  the  American  farmer 
has  been  fleeced  too  often  in  being  induced  to  subscribe  to 
stock  in  some  corporation,  which  he  is  told  is  organized  for 
his  benefit,  but  which  to  his  sorrow  he  has  found  is  organ- 
ized for  the  sole  purpose  of  taking  his  money  away  from 
him.  He  does  not  intend  to  subscribe  to  any  more  stock 
schemes  nor  will  he  be  satisfied  with  a  profit-making,  specu- 
lative land-banking  system,  by  being  told  that  it  is  a 
rural-credit  system.     He  knows  that  such  a  scheme  is  not 


198  Land  Credits 

a  rural-credit  system  and  will  have  nothing  to  do  with  it. 
I  know  that  some  farmers  have  been  led  into  indorsing 
the  HoIIis-Bulkley  Bill  by  explanations  of  it  which  have 
appeared  in  some  of  the  farm  papers.  I  have  one  of 
these  indorsements  to-day,  which  inclosed  a  newspaper 
clipping  describing  the  Hollis-Bulkley  Bill.  This  clipping 
states  that  under  the  Hollis-Bulkley  Bill  the  rate  of  in- 
terest shall  not  exceed  5  per  cent.  This  statement  is  false, 
for  the  limit  that  the  Hollis-Bulkley  Bill  places  on  the 
interest  rate  is  the  limit  of  interest  fixed  by  the  law,  which 
in  my  State  would  be  10  per  cent." 

Hon.  Scott  Ferris,  of  Oklahoma  : 

"  There  are  many  weird  rural-credit  proposals  now  pend- 
ing before  Congress.  There  is  much  misinformation  about 
this  subject.  Stripped  of  all  details  and  stripped  of  all 
personalities,  there  is  but  one  great  question  in  this  mat- 
ter and  that  is.  Shall  the  Federal  government  lend  its 
strength,  its  stability  and  strong  arm  toward  making  a 
rural-credit  system  that  will  be  workable,  feasible,  and  of 
aid  to  the  American  farmers?  It  is  not  too  much  to  say, 
and  I  do  not  believe  it  will  be  controverted  by  either  friend 
or  foe  of  this  legislation,  that  practically  every  civilized 
country  in  the  world  is  giving  government  aid  toward  a 
rural-credit  system  to  encourage  agricultural  production. 
I  think  it  will  not  be  controverted  that  in  order  to  have 
long  tenure  and  a  low  rate  of  interest  two  things  are  of 
necessity  to  the  farmer,  who  from  the  very  nature  of  things 
can  earn  but  slowly ;  the  Government  must  place  its  strong 
right  arm  behind  the  proposal  and  see  to  it  that  a  few 
scheming  speculators  do  not  outstrip  the  farmer." 

Hon.  Ezekiel  S.  Candler,  Jr.,  of  Mississisppi  : 

"  I  strongly  favor  the  establishment  in  this  country  of 
a  rural-credit  system  which  will  not  only  give  the  farmers 
who  own  land  relief,  but  I  also  go  further,  and  favor  giv- 
ing to  those  farmers  who  are  not  so  fortunate  as  to  own 


Government  Aid  199 

land  a  system  of  credits  by  which  they  can  also  secure 
relief.  This  class  of  farmers  deserve  our  consideration, 
just  as  much  as  the  farmers  who  are  landowners.  We  must 
help,  if  we  can,  all  classes  of  our  farmers  if  we  would  bring 
about  the  greatest  degree  of  prosperity." 

Hon.  Ealph  W.  Moss,  of  Indiana: 

"  I  deny  the  fact,  and  if  I  had  time  I  could  prove  it, 
that  government  aid  has  ever  been  able  to  reduce  the  in- 
terest rate  of  any  country  in  the  world  below  that  which 
is  afforded  by  private  initiative.  It  is  easily  possible  to 
show  that  banks,  privately  managed  and  endowed  with  pri- 
vate capital,  without  other  vestige  of  government  aid  than 
that  which  comes  from  governmental  supervision  and  con- 
trol, have  been  able  to  give  the  farmers  of  a  nation  as  low 
an  interest  rate  as  any  government-aided  institution  in 
that  nation  was  able  to  give  them.  I  challenge  any  man 
to  point  out  any  concrete  illustration  of  any  nation  on  the 
face  of  the  earth  where  governmental  aid  has  been  able 
to  reduce  the  interest  rate  below  that  maintained  by  private 
initiative.  This  substitute  is  not  a  bill  that  has  not  been 
carefully  considered. 

"  I  am  glad  my  friend  from  Ohio  admits  that  it  had 
been  carefully  considered.  Of  course  it  has  been  carefully 
considered,  and  if  section  30  were  in  the  bill  I  have  no 
doubt  he  would  be  willing  to  accept  it.  The  gentleman 
says  he  proposes  to  offer  an  amendment  to  strike  out  sec- 
tion 17.  This  is  the  compromise  section  which  harmon- 
izes the  ideas  of  the  commission  with  those  of  the  commit- 
tee. The  gentleman  is  very  willing  to  accept  the  funda- 
mental principles  enunciated  by  us,  but  eagerly  desires  to 
take  away  all  of  the  administrative  features  that  have  been 
adopted  by  the  United  States  commission.  He  would  deny 
the  power  to  any  individual  or  to  any  association  of  per- 
sons to  organize  an  independent  bank  in  any  State  of  the 
Union.     In  this  method  and  by  this  amendment  he  would 


200  Land  Credits 

stifle  all  competition  among  institutions  which  are  organ- 
ized to  serve  the  interests  of  the  farmers." 

Hon.  Edward  W.  Saunders,  op  Virginia  : 

"Mr.  Speaker,  I  am  profoundly  convinced  that  the 
greatest  blunder  of  the  Sixty-third  Congress  has  been  its 
failure  to  deal  effectively  with  the  great  subject  of  rural 
credit  —  and  give  the  farmers  both  farm  mortgage,  as 
well  as  personal  credit  legislation.  In  part  this  failure  is 
due  to  the  fact  that  we  have  occupied  too  much  time  in 
the  discussion  of  measures  of  doubtful  value.  One  further 
explanation  of  this  failure  may  be  traced  to  the  method 
of  investigation  pursued  by  the  numerous  investigating 
bodies  created  by  this  Congress.'' 

Hon.  Edward  E.  Browne^  op  Wisconsin: 

"  Mr.  Speaker,  I  am  in  favor  of  this  bill  because  it  will 
give  the  farmer  a  chance  to  borrow  money  on  long-time  loans 
at  5  per  cent,  interest. 

"  The  Government  in  this  bill  is  safeguarded  so  that 
it  stands  no  chance  of  losing  a  dollar. 

"  This  bill  has  already  passed  the  Senate,  and  if  we  concur 
in  it  at  this  time  it  will  become  a  law.  A  bureau  of  farm 
credits  will  be  established  in  the  Treasury  Department, 
presided  over  by  a  commissioner  of  farm  credits,  and 
$10,000,000  appropriated  and  loaned  on  gilt-edge  farm 
security.  ^Vhen  $1,000,000  of  this  amount  is  loaned,  bonds 
Avill  be  issued  for  that  amount  and  sold,  so  the  Govern- 
ment will  not  at  any  one  time  have  more  than  $10,000,000 
invested. 

"  This  bill  is  not  perfect,  and  perhaps  is  not  as  good  a 
bill  as  some  of  the  others  which  have  been  introduced  and 
which  have  been  slumbering  in  the  committees.  But,  in 
my  opinion,  with  only  two  days  remaining  before  Con- 
gress will  adjourn,  the  substitution  of  any  other  bill  for 
this  one,  or  the  amendment  of  this  bill,  will  necessitate 
its  going  back  to  the  Senate,  where  it  will  stand  no  show 
of  passing." 


Government  Aid  201 

Hon.  Martin  D.  Foster,  of  Illinois  : 

"  There  is  no  better  security  than  land  security.  When 
the  Federal  Eeserve  Act  was  under  consideration  it  was 
promised  to  the  farmers  of  the  country  that  at  a  later  date 
this  matter  would  be  taken  up  by  Congress  and  fully  con- 
sidered and  a  bill  passed  giving  them  the  kind  of  credit 
that  was  necessary  to  carry  on  their  business.  It  is  the 
duty  of  Congress  to  carry  out  this  pledge  and  to  fulfill 
the  demand  made  by  the  farmers  everywhere  for  a  credit 
system  that  will  permit  them  to  borrow  money  at  a  lower 
rate  of  interest  and  on  more  favorable  terms  than  they  are 
now  able  to  do.  As  a  rule  they  are  not  large  borrowers, 
but  desire  to  secure  loans  for  the  purpose  of  buying  land, 
improving  the  farm,  or  to  meet  demands  that  are  necessary 
until  a  crop  can  be  made  and  the  money  secured  by  selling 
the  product  to  meet  their  obligations.  It  is  to  be  regretted 
that  in  this  Congress  it  has  not  been  possible  to  secure 
some  system  to  aid  the  farmer  so  that  he  might  meet  his 
financial  condition  on  more  favorable  terms.'' 

Hon.  Moses  P.  Kinkaid,  of  Nebraska  : 

"Mr.  Speaker,  the  main  difficulty  is  that  the  member- 
ship is  divided  into  two  schools  as  to  what  should  constitute 
the  fundamentals  of  a  rural-credit  act.  The  particular 
feature  of  this  issue  is  whether  middlemen  shall  be  given 
the  administration  of  the  law  with  the  right  to  a  commis- 
sion or  compensation  which  will  prevent  a  reduction  of 
interest  rates  below  what  has  now  to  be  paid  by  farmer  bor- 
rowers. It  ought  to  be  granted  that  it  would  be  useless 
to  pass  a  rural-credits  act  unless  interest  rates  are  to  be 
materially  lowered.  Whatever  kind  of  a  bill  may  be  passed 
useless  overhead  expenses  should  be  avoided,  otherwise  the 
first  and  main  purpose  of  such  legislation  will  be  nullified. 
For  my  part,  while  I  do  not  regard  the  provisions  of  the 
McCumber  Bill  as  complete  as  are  desirable,  I  shall  vote 
for  it  and  otherwise  give  it  my  hearty  support,  because  it 


202  Land  Credits 

contains  the  very  best  it  is  possible  to  secure  in  the  way  of 
rural-credits  legislation  during  this  Congress,  which  will 
be  extinct  in  a  few  hours. 

"  Mr.  Speaker,  a  rural-credits  law  ought  to  have  been 
passed  two  or  three  years  ago,  and  there  was  a  greater  rea- 
son still  why  such  relief  ought  to  have  been  afforded  a 
year  ago,  and  naturally  the  demand  has  been  more  impera- 
tive for  such  relief  at  this  session  than  ever.  The  demand 
for  such  relief  has  been  increasing,  because  the  subject  has 
been  all  the  time  receiving  greater  and  more  widespread 
attention." 

Hon.  Eichard  Wayne  Parker,  of  New  Jersey  : 

"  Mr.  Speaker,  a  joint  committee  of  twelve  Senators  and 
Representatives  has  been  ordered  to  report  a  system  of  rural 
credits  '  adapted  to  American  needs  and  conditions.'  The 
country  ought  to  know  what  this  means,  and  we  must  judge 
what  it  may  mean  by  what  the  two  Houses  have  already 
done.  In  foreign  countries  local  associations  of  farmers 
are  formed  to  encourage  husbandry  and  guarantee  each 
other's  loans.  In  this  country  the  savings  banks  and  build- 
ing and  loan  associations  that  have  sprung  up  everywhere 
have  done  much  to  give  rural  credit  and  afford  farm  mort- 
gages at  lower  rates  of  interest.  But  a  cry  has  gone  up  for 
more,  that  cooperation  is  not  enough,  and  that  the  United 
States  Government  must  find  the  money  for  these  mortgage 
loans,  even  if  it  has  to  be  borrowed  on  an  issue  of  gov- 
ernment bonds. 

"  This  is  a  matter  that  the  country  must  realize  and 
consider,  for  the  policy  of  government  loans  to  private 
enterprise  is  becoming  as  real  an  issue  as  greenback  or 
specie  payments  or  free  silver  or  the  subtreasury  schemes 
were  in  the  past." 

Hon.  Henry  T.  Helegesen,  of  North  Dakota: 

"  I  did  not  introduce  this  resolution  because  I  had  any 
pet  plan  for  providing  the  country  with  a  system  of  per- 


Government  Aid  203 

sonal  rural  credits,  but  because  I  realized  the  vital  impor- 
tance of  the  proposition,  and  because  I  find  that  it  is  so 
little  understood,  not  only  by  the  people  at  large,  but  by 
those  who  are  charged  with  the  responsibility  of  legislating 
on  the  subject,  that  I  thought  it  wise  to  provide  for  a 
hearing  that  would  give  all  those  who  are  interested  in  the 
subject  a  chance  to  be  heard,  no  matter  whether  they  be 
for  or  against  the  proposition. 

"  Such  a  hearing  as  I  have  proposed  would  give  us  the 
arguments  on  both  sides  presented  by  the  best  experts  ob- 
tainable, and  would,  therefore,  furnish  us  with  the  best 
possible  basis  for  the  drafting  of  a  bill  that  would  bring 
the  necessary  relief,  and  by  having  constantly  before  us 
the  arguments  of  those  who  are  opposed  to  the  proposition 
we  would  be  aided  in  drafting  a  bill  that  would  not  un- 
necessarily antagonize  their  interests." 

Hon.  William  A.  Oldfield,  of  Arkansas  : 

"  Congress  should  do  two  things  in  the  matter  of  estab- 
lishing a  personal  rural-credit  system:  First,  establish  a 
system  which  will  create  a  piece  of  productive  farm  paper 
which  is  as  good  and  sound  as  the  farm  paper  created  by 
the  best  of  foreign  personal  rural-credit  systems;  second, 
create  a  healthy  public  sentiment  among  the  investing 
classes  for  that  paper.  You  must  have  buyers  as  well  as 
sellers  before  you  can  do  business.  If  I  were  to  take  a  load 
of  cotton  to  Des  Moines,  Iowa,  I  would  have  to  dispose  of 
it  as  souvenirs,  as  there  is  no  commercial  market  there  for 
cotton  in  the  seed.  But  let  me  take  it  to  my  home  city 
during  the  season,  and  the  moment  I  reached  the  public 
square  there  would  be  buyers  to  meet  me.  Precisely  the 
same  thing  is  true  respecting  investments.  In  planning  a 
system  for  this  country  it  is  important  that  one  should 
know  the  reasons  imderlying  the  success  of  those  foreign 
systems,  but  it  is  absolutely  necessary  that  he  should 
know  all  about  the  financial  institutions  and  character- 
istics of  our  investing  classes." 


204  Land  Credits 

Hon.  Andrew  J.  Volstead,  of  Minnesota  : 

"  Under  the  Federal  Eeserve  Act  more  than  a  hundred 
million  dollars  will  be  constantly  kept  in  the  Federal  re- 
serve banks  for  the  benefit  of  commerce.  Why  not  con- 
tribute, if  necessary,  say,  $10,000,000  as  a  guaranty  fund 
to  aid  agricultural  credit?  It  could  probably  be  made  to 
pay  the  Government  as  large  a  return  as  the  money  con- 
tributed to  the  Federal  reserve  system.  To  the  extent  of 
such  contribution  the  Government's  liability  would  be  lim- 
ited. We  certainly  could  do  that  if  we  can  guarantee  all 
the  notes  of  the  Federal  reserve  banks,  a  liability  that  is 
almost  unlimited. 

"  If  the  dreams  of  those  who  have  been  the  most  en- 
thusiastic in  urging  rural-credit  legislation  should  come 
true,  it  would  greatly  aid,  not  only  the  farmers,  but  every- 
body else.  The  prosperity  of  the  farm  means  prosperous 
merchants,  mills,  and  mines.  Instead  of  passing  laws  to 
take  from  the  farmers  the  protection  accorded  other  pro- 
ducers, instead  of  trying  to  cripple  the  rural  route  system 
which  the  administration  appears  to  be  bent  on  doing,  it 
seems  to  me  that  we  should  do  what  we  can  to  aid  the 
farmers  to  secure  equal  treatment  with  other  classes  of 
our  people." 

Hon.  J.  Chaeles  Linthicum,  of  Maryland: 

"  The  Federal  Eeserve  Act  provides  for  loans  whereby  the 
farmer  may  borrow  from  the  bank  for  a  term  of  years; 
but  the  truth  of  the  situation  is  that  the  banks  do  not 
want  to  lend  to  the  farmer.  The  banks  depend  for  their 
profit  upon  the  constant  investment  of  their  money.  If  all 
their  money  was  loaned  out  in  long-time  loans,  it  would 
not  be  possible  to  pay  running  expenses  and  the  proper 
dividends.  The  banking  system  as  now  established  is  evi- 
dently for  the  commercial,  business,  and  financial  interests 
of  the  land.  While  I  say  it  is  the  best  system  ever  adopted 
in  this  country  and  the  finest  piece  of  constructive  legis- 


Government  Aid  2015 

lation  passed  within  the  last  fifty  years,  the  fact  still  re- 
mains that  even  with  the  changes  made  in  this  system  it 
does  not  serve  the  interest  of  the  farmer,  and  the  conse- 
quence is  that  not  alone  is  it  impossible  for  him  to  obtain 
money,  but  when  he  does  obtain  it  it  costs  him  a  much 
larger  rate  of  interest  than  it  does  the  other  pursuits  of 
life." 

Hon.  Maueice  Connolly,  of  Iowa: 

"It  is  possible  that  in  the  State  of  Iowa  there  are  a 
great  many  farmers  who  are  no  longer  in  the  borrowing 
class,  but,  on  the  other  hand,  there  are  the  young  men  on 
the  farms  who  have  the  ambition  to  acquire  their  own 
farms  and  homes  and  who  have  the  energy  and  character, 
if  they  are  provided  with  an  opportunity,  to  successfully 
carry  through  such  a  proposition.  And  there  are  many 
farmers  who  are  now  tenants,  who  have  accumulated  a 
sufficient  sum  to  make  a  substantial  payment  on  a  farm, 
who  would  be  greatly  encouraged  under  facilities  that  could 
be  offered  in  a  proper  rural-credits  bill  that  would  insure 
them  a  low  rate  of  interest  and,  under  the  amortization 
phan,  a  long  number  of  years  in  which  to  pay  off  the  obli- 
gation." 

Hon.  Charles  H.  Sloan,  of  Nebraska  : 

"  A  great  deal  has  been  said  about  the  Landschaft  and 
other  rural-credit  systems  in  Europe.  We  could  safely  in- 
vestigate and  consider  them,  but  should  not  be  guided  or 
controlled  by  them.  America's  situation  is  different  from 
that  of  any  European  country.  Our  ways  are  not  their 
waj^s,  nor  are  their  conditions  ours.  We  can  safely  trust 
our  Eepresentatives  to  take  account  of  our  conditions  and 
legislate  in  the  interest  of  our  people  for  the  purpose  of 
rectifying  and  changing  those  conditions,  if  they  should 
be  changed.  Our  legislation  should  be  based  upon  our  own 
history  and  present  state  of  development  and  future  condi- 
tions  desirable   to  be  brought  about.     Past   and  foreign 


2o6  Land  Credits 

precedents  and  practices  may  be  shackles  for  our  limbs  in- 
stead of  walls  for  our  protection.  The  oxgoad  will  not 
control  the  spirited  horse,  nor  the  equine  reins  direct  an 
automobile." 

Hon-.  "William  S.  Goodwin,  of  Arkansas  : 

"  Mr.  Speaker,  I  think  the  failure  of  this  Congress  to 
enact  a  rural-credit  law  approaches  almost  a  tragedy  in  our 
economic  life.  I  do  not  believe  that  the  attention  of  the 
American  farmer  has  been  directed  to  any  one  national 
legislative  matter  so  much  as  upon  the  subject  of  rural 
credits  unless  it  be  that  other  question  which  many  consider 
of  even  greater  importance  —  the  distribution  and  market- 
ing of  farm  products  —  which  goes  as  a  handmaid  to  the 
subject  of  rural  credits.  I  have  not  thought  for  the  past 
few  months  that  Congress  would  enact  this  law  at  this 
session,  and  yet  in  my  opinion  there  has  been  no  legiti- 
mate excuse  for  this  failure.  We  know  the  unfortunate 
disagreement  existing  between  the  Members  who  compose 
the  Banking  and  Currency  Committee  —  their  failure  to 
get  together  and  agree  upon  a  given  proposition.  When 
a  great  question  like  this  is  demanded  by  the  people  Mem- 
bers composing  a  committee  should  abandon  their  pet 
theories  and  bills,  make  common  sacrifice,  though  not  too 
much  in  principle,  and  agree  upon  a  sound  economic  meas- 
ure that  the  agricultural  people  may  have  what  they  de- 
mand and  what  has  been  promised  to  them." 

Ill 

The  Federal  Government  SJiould  Render  All  the  Aid 
That  is  Necessary  to  Provide  Agriculture  With  Adequate 
Credit  at  a  Low  Rate  of  Interest. 

The  above  proposition  will  be  discussed  under  the  fol- 
lowing general  heads : 

1.  The  kind  or  form  of  aid  rendered  by  the  national 
Government  is  immaterial  if  it  be  sufficient  and  efficient. 


Government  Aid  207 

2.  Forms  of  government  aid. 

3.  Some  arguments  in  favor  of  government  aid, 

4.  The  use  of  the  funds  of  the  Government  to  purchase 
farm-mortgage  bonds,  as  proposed  in  the  Sub-committee 
Bill,  is  not  the  best  plan  of  government  aid,  viewed  from 
the  Government's  standpoint.  Neither  will  it  render  the 
most  effective  aid  to  the  farmers. 

1.  The  hind  or  form  of  aid  rendered  hy  the  national 
Government  is  immaterial  if  it  he  sufficient  and  efficient. 

In  discussing  the  above  proposition,  it  will  be  well  to 
keep  constantly  in  mind  the  two  great  practical  results  to 
be  obtained,  namely:  adequate  credit  and  cheap  interest. 
It  is  wholly  immaterial  what  form  of  aid  shall  be  rendered, 
providing  the  aid  brings  the  desired  results.  It  is  not  a 
question  of  the  kind  of  aid,  it  is  a  question  of  the  suffi- 
ciency and  efficiency  of  the  aid.  The  great  controversy 
has  been  over  the  use  of  government  funds  or  the  extension 
of  the  Government's  credit.  Yet  aid  in  both  of  these  forms 
might  be  extended  and  still  not  provide  the  farmers  of  the 
United  States  with  adequate  credit  at  a  low  rate  of  in- 
terest. And  it  is  possible  that  without  doing  either,  the 
Federal  government  may  create  a  system  of  land  credit 
that  will  enable  the  farmers  of  the  United  States  to  obtain 
an  abundance  of  credit  at  the  lowest  rate  of  interest. 
The  Sub-committee  Bill  provides  for  the  use  of  the  Gov- 
ernment's funds  in  purchasing  shares  of  stock  in  the  banks 
to  be  established  and  in  buying  the  bonds  of  these  insti- 
tutions. But  these  banks  into  which  the  Government  is  to 
put  its  money  and  whose  bonds  it  is  to  purchase,  are  to  be 
organized  purely  for  the  profit  of  the  share-holders;  they 
are  to  be  owned  and  operated  by  money  lenders;  and  con- 
ducted solely  without  any  altruistic  object.  They  can  not 
be  economically  operated,  which  the  authors  of  these  bills 
virtually  admit  from  the  fact  that  these  banks  are  author- 
ized to  charge  the  farmers  1  per  cent,  annually  upon  the 
amount  of  their  loans,  simply  to  pay  the  administration 


2o8  Land  Credits 

expenses.  Before  the  farmers  accept  anything  Just  so  it 
has  "  government  aid  "  labeled  upon  it,  they  had  better 
give  serious  study  as  to  what  effect  certain  proposed  gov- 
ernment aid  will  have  upon  the  interest  rates  which  they 
will  have  to  pay.  On  the  other  hand,  some  people  are 
ready  to  accept  any  kind  of  land-credit  legislation  that 
does  not  involve  the  use  of  the  Government's  cash  or  its 
credit.  It  is  true  that  European  countries  have  been  lib- 
eral in  the  use  of  their  funds  in  organizing  and  founding 
land-credit  institutions.  But  it  is  doubtful  if  the  funds 
granted  have  been  a  controlling  factor  in  the  amount  of 
credit  these  institutions  have  extended  or  in  the  rate  of 
interest  they  have  charged.  It  was  not  the  $2,000,000 
granted  by  France  to  the  Credit  Foncier  which  made  it 
the  greatest  land-credit  bank  in  the  world.  Special  priv- 
ileges made  this  institution  what  it  is  to-day.  With  these 
special  privileges,  and  without  the  $2,000,000  the  Credit 
Foncier  stiU  would  have  become  a  great  land  bank.  With 
the  $2,000,000  and  without  the  special  privileges,  the 
Credit  Foncier  would  not  be  a  model  from  which  other 
nations  are  copying.  The  Landschaften  of  Germany  by 
almost  universal  consent  have  been,  all  things  considered, 
the  most  successful  farm-mortgage  credit  institutions  which 
have  ever  been  devised.  But  the  amount  of  governmental 
funds  granted  to  these  institutions  has  had  little,  if  any- 
thing, to  do  with  their  success.  The  Landschaften  have 
been  able  to  command  adequate  credit  for  the  farmers  of 
Germany,  because  their  debentures  were  issued  under  con- 
ditions, prescribed  by  the  governments,  which  made  these 
debentures  absolutely  secure,  and  they  were  able  to  grant 
credit  at  the  lowest  rate  of  interest,  generally  as  low  as 
the  Imperial  Government  could  borrow  money,  because 
their  securities  were  safe  and  their  administration  expenses 
were  light.  The  government  aid  which  will  serve  the  farm- 
ers best,  is  that  aid  which  will  enable  them  to  offer  to  the 
public  securities  which  are  absolutely  safe,  through  an  in- 


Government  Aid  209 

stitution  that  can  be  economically  administered,  and  in 
which  investors  will  have  perfect  confidence.  If  the  Fed- 
eral government  will  create  land-credit  institutions  for 
the  farmers  of  the  United  States  which  can  be  economi- 
cally operated,  and  in  which  the  public  will  have  implicit 
confidence,  and  then  see  to  it  that  farm-mortgage  bonds 
shall  be  issued  under  such  conditions  and  restrictions  as 
will  make  them  safe,  a  stream  of  credit  will  flow  from  these 
institutions^  in  volume  great  enough  and  in  price  cheap 
enough,  to  meet  every  demand  of  agriculture  and  to  supply 
every  need  of  the  farmers.  Economy  of  administration, 
saf tey  of  securities,  confidence  in  the  institution  —  these 
three  mean  abundance  of  credit  on  the  best  terms.  Some 
are  advocating  that  the  Federal  government  shall  guaran- 
tee the  payment  of  the  mortgages  of  the  farmers.  But  if 
the  Federal  government  will  guarantee  the  land  banks, 
which  it  brings  into  existence,  there  will  be  precious  little 
need  of  any  government  guaranty  for  the  farmers'  mort- 
gages. The  farmers'  mortgages  are  all  right.  The  danger 
is  that  the  Federal  government  will  permit  banks  to  handle 
these  mortgages  which  never  can  gain  the  confidence  of 
investors.  The  Federal  government  may  create  institutions 
which  will  impose  excessive  administrative  charges  upon 
the  farmers  and  thus  add  materially  to  the  interest  rate. 
Many  able  statesmen  seem  greatly  disturbed  for  fear  a 
few  millions  of  dollars  will  be  taken  out  of  the  national 
treasury  to  aid  in  establishing  adequate  credit  facilities  for 
our  farmers;  but  they  seem  utterly  oblivious  about  the 
millions  which  are  to  come  out  of  the  pockets  of  the  farmers 
in  excessive  and  unnecessary  charges  for  operating  expenses. 
Think  of  the  difference  between  1  per  cent,  and  one-half 
of  1  per  cent,  per  annum  for  administrative  charges  on 
$2,000,000,000  in  loans  which  the  farmers  will  want  to 
borrow  under  our  new  land-credit  system.  The  difference 
is  $10,000,000  a  year.  In  the  eyes  of  some,  this  is  a  small 
matter,   as  it  comes  from  the  earnings  of  our  farmers. 


2IO  Land  Credits 

But  coming  from  the  Federal  treasury,  it  might,  to  their 
minds,  endanger  the  national  credit  and  weaken  the  very 
fabric  of  our  government !  The  author  of  this  volume 
is  not  afraid  to  use  the  credit  or  the  cash  of  the  Federal 
government  to  insure  the  success  of  our  land-credit  insti- 
tutions. Whatever  credit  or  cash  is  necessary  for  this 
purpose  should  be  forthcoming.  He  believes,  however,  that 
too  much  prominence  has  been  given  to  the  abstract  ques- 
tion of  "  government  aid,"  and  that  too  little  attention  has 
been  given  to  the  kind  and  character  of  aid  that  should  be 
given.  Whatever  may  have  been  said  by  those  in  au- 
thority, or  out  of  authority,  against  the  use  of  the  credit  or 
cash  of  the  Government  to  promote  land  credits,  when  the 
final  test  comes  all  proper  and  needful  aid  will  be  granted. 
It  is  not  possible  that  the  iVmerican  Congress  will  stand 
on  a  mere  quibble,  and  refuse  to  give  all  the  financial  aid 
that  is  necessary  to  make  the  great  undertaking  a  success. 
The  important  question  now  is  to  get  a  clear  understanding 
of  what  aid  is  needed,  and  the  best  way  by  which  to  render 
this  aid.     This  is  the  task  that  is  now  before  us. 

1.  Forms  of  Government  Aid. 

The  Federal  government  may  render  aid  to  agricultural 
credit  in  the  following  ways : 

(1)  By  legislation. 

(2)  By  supervision. 

(3)  By  management  or  control. 

(4)  By  special  privileges. 

(5)  By  use  of  its  credit. 

(6)  By  appropriation  of  its  funds. 

The  Federal  government  may  use  its  credit  and  funds  in 
extending  aid  in  any  of  the  six  ways  above  enumerated. 
This  distinction  might  be  made:  in  one  case,  the  Govern- 
ment may  extend  credit  or  use  its  funds  directly;  in  an- 
other case  the  credit  and  funds  may  be  used  indirectly. 
The  real  controversy  is  not  in  the  use  of  the  credit  of  the 
Government  or  the  appropriation  of  its  funds.     The  dispute 


Government  Aid  211 

is  over  how  these  funds  shall  be  used.  This  point  will  be 
fully  discussed.  It  is  important  that  the  friends  of  rural 
credit  legislation,  and  they  are  numerous  on  both  sides  of 
the  "government  aid"  controversy,  should  get  clearly  in 
their  minds  that  after  all  the  contest  over  "government 
aid "  is  in  a  great  measure  a  "  distinction  without  a 
difference." 

(1)  Aid  through  legislation.  There  is  no  controversy 
over  the  proposition  that  the  Federal  government  should 
render  aid  to  agricultural  credit  through  legislation.  The 
national  government  might  leave  the  field  to  the  State  gov- 
ernments. The  United  States  Commission,  the  American 
Commission,  the  Committees  of  Congress,  and  the  Presi- 
dent, have  all  recommended  national  legislation.  The 
N"ational  Grange,  the  Farmers'  Union,  the  Agricultural 
Press,  magazines,  newspapers  of  all  kinds,  students  of  po- 
litical economy,  and  leading  citizens,  favor  national  legis- 
lation to  provide  our  farmers  with  proper  credit  facilities. 
Public  sentiment  favors  national  legislation  as  against 
State  legislation.  There  is  no  doubt  that  sooner  or  later 
Congress  will  enact  a  law,  establishing  a  national  system  of 
land  credit.  In  doing  so,  the  national  government  will 
assume  a  new  responsibility.  That  reponsibility  can  not 
and  will  not  be  discharged  without  the  use,  directly  and 
indirectly,  of  both  the  credit  and  the  funds  of  the  national 
government.  If  by  national  legislation  we  create  new  in- 
stitutions, we  necessarily  stamp  upon  them  the  good  faith 
and  credit  of  the  United  States.  The  Federal  govern- 
ment must  enforce  and  administer  the  laws  it  enacts.  To 
enforce  and  administer  laws,  requires  the  expenditure  of 
money.  The  very  first  step  to  be  taken  —  the  enactment  of 
a  national  law  to  promote  rural  credits  —  implies  new 
duties  and  responsibilities  for  the  national  government 
and  additional  appropriations  out  of  the  national  Treasury. 

(2)  National  Aid  Through  Supervision.  There  is 
unanimity  on  the  proposition  of  Federal  supervision.     The 


212  Land  Credits 

Commission  Bill,  the  Sub-committee  Bill,  and  the  Senate 
Committee  Bill,  all  create,  under  some  name,  some  kind  of 
a  Federal  bureau,  and  confer  upon  it  the  authority  to 
supervise  the  land  banks  to  be  organized.  In  assuming 
the  responsibility  of  supervising  these  institutions  the 
Federal  government  lends  its  credit  to  them.  The  Gov- 
ernment by  supervision,  in  an  important  way,  gives  the 
public  a  guaranty  that  such  institutions  are  honestly  con- 
ducted, and  that  they  fully  comply  with  all  the  laws  and 
regulations  made  to  protect  the  public.  By  supervising 
them,  the  Federal  government  gives  them  a  certificate  of 
good  character,  A  land-credit  bank,  organized  under  a 
national  law,  doing  business  under  the  general  direction  of 
a  Federal  bureau,  subject  to  inspection  and  surveillance  of 
Federal  officers,  rightfully  in  the  public  mind,  has  the  en- 
dorsement and  approval  of  the  Federal  government,  and 
this  means  the  credit  of  the  United  States.  Furthermore, 
in  the  supervision  of  these  institutions,  the  funds  of  the 
United  States  will  be  used  directly.  The  three  "  officially 
endorsed  "  bills  all  propose  to  create  some  kind  of  a  Federal 
bureau  to  supervise  our  land-credit  banks.  There  must 
be  a  head  to  this  bureau.  He  must  be  paid  a  high  salary. 
There  must  be  numerous  high  officials.  There  must  be  a 
large  number  of  experts,  inspectors,  special  agents,  clerks, 
messengers  and  other  employees.  They  must  have  a  build- 
ing in  which  to  work.  There  must  be  heat,  light,  fixtures, 
furniture,  apparatus,  stationery,  postage,  equipment,  trav- 
eling expenses,  and  expenses  along  many  other  lines.  The 
amount  which  the  Federal  government  will  expend  in  super- 
vision can  not  be  accurately  estimated.  It  will  not  be  in- 
significant and  it  will  grow  from  year  to  year. 

(3)  Government  Aid  through  Management  or  Control. 
The  Federal  government  may  render  aid  through  the  man- 
agement or  control  of  the  land-credit  institutions.  Man- 
agement or  control  is  something  more  than  general  super- 
vision or  regulation  through  statutory  provisions  and  rules 


Government  Aid  213 

and  regulations.  Purely  private,  profit-sharing,  joint-stock 
land-mortgage  banks  are  placed  under  the  general  super- 
vision of  a  department  or  bureau  of  the  Government  and 
are  regulated  by  general  statutory  enactments.  Such  in- 
stitutions are  strictly  private  corporations,  organized  for 
profit,  owned  and  operated  by  private  capital,  and  in  no 
sense  are  expected  to  serve  the  public  good,  to  any  larger 
degree  than  corporations  engaged  in  all  kinds  of  private 
business  enterprises.  In  public  or  semi-public  land-credit 
institutions,  the  Government  does  more  than  supervise  and 
regulate  through  general  statutes.  In  these  institutions, 
through  the  appointment  of  the  officers  and  directors  of 
the  institutions  or  part  of  them,  or  by  the  actual  participa- 
tion by  government  officers  in  the  management  thereof,  the 
Government  actively  participates  in  their  control  and  man- 
agement. Government  aid  through  participation  in  the 
control  and  management  of  the  institutions  has  been  com- 
mon with  European  nations,  and  has  contributed  perhaps  as 
much  toward  the  success  of  their  land-credit  systems  as 
the  actual  money  appropriated  out  of  the  public  treasuries 
for  their  benefit.  This  form  of  government  aid  apparently 
has  been  given  little  serious  thought  by  students  of  the  sub- 
ject in  this  country.  Of  course,  all  public  or  semi-public 
land-credit  institutions  are  either  partially  or  entirely  con- 
trolled and  managed  through  government  offi,cials.  Else- 
where in  this  volume  it  has  been  shown  that  the  bulk  of 
the  land-credit  institutions  of  Europe  are  public  or  semi- 
public  institutions.  It  follows,  of  course,  that  the  vast 
majority  of  these  institutions  are  not  simply  under  the  gen- 
eral supervision  of  government  bureaus,  but  the  govern- 
ments assume  a  part  or  all  the  responsibility  in  their  man- 
agement. The  Landschaften  of  Germany  are  not  private 
institutions.  It  is  frequently  said  that  they  are  associa- 
tions of  borrowers.  In  a  sense,  this  is  true.  They  are 
more  than  this.  When  Frederick  the  Great  founded  these 
institutions,  membership  therein  was  made  compulsory  upon 


214  Land  Credits 

the  owners  of  farms  within  a  certain  class.  Some  of  the 
important  ofBcers  of  the  Landschaf  ten  are  selected  or  chosen, 
subject  to  the  approval  of  the  Government.  Indeed,  the 
officers  of  the  Landschaften  have  the  status  of  public  of- 
ficers, and  exercise  governmental  executive  and  judicial 
power.  The  Landschaften  are  not  simply  supervised  by  the 
Government;  they  are  in  a  large  degree,  government-con- 
trolled institutions.  In  Germany  the  State,  Provincial  and 
District  Mortgage  Credit  Banks,  the  Land  Improvement 
Funds,  the  Land  Improvement  Annuity  Banks,  the  Provin- 
cial Aid  Banks,  the  Eent  Charge  Banks,  and  the  Imperial 
Insurance  Institutions  are  all  government-controlled  insti- 
tutions. 

The  Credit  Foncier  of  France  is  in  part  actually  con- 
trolled by  the  French  government.  The  President  of 
France  appoints  its  president  and  two  vice-presidents. 
Three  of  the  directors  must  be  chosen  from  the  Ministry 
of  Finance.  Eevenue  officers  aid  in  conducting  its  business 
transactions. 

The  Chilean  Land  Mortgage  Bank,  one  of  the  greatest 
mortgage-credit  institutions,  is  not  only  owned  by  Chile, 
but  is,  of  course,  controlled  and  operated  by  the  govern- 
ment. Austria  has  seventeen  Provincial  Land  Banks,  con- 
trolled and  operated  by  the  Provincial  governments.  The 
Australian  States  have  founded  land-credit  banks  which  are 
managed  and  controlled  through  public  officials  or  officers 
appointed  by  State  officials. 

There  is  abundant  precedent  for  governmental  control. 
Where  government  control  is  exercised,  generally  the  gov- 
ernment furnishes  part  or  all  the  capital.  This,  how- 
ever, is  not  always  the  case.  Neither  is  it  essential  to  the 
exercise  of  such  control.  In  founding  our  land-credit  in- 
stitutions, three  ways  are  open.  These  institutions  may  be 
(1)  strictly  private  institutions,  subject  to  general  super- 
vision; (2)  public  or  semi-public  institutions,  under  part 
or  complete  control  of  the  government,  with  the  capital  fur- 


Government  Aid  2115 

nished  in  whole  or  in  part  by  the  government;  and  (3) 
a  public  or  semi-public  institution  under  the  control  of 
the  government,  with  capital  furnished  by  borrowers,  or 
secured  from  other  private  sources.  If  purely  private, 
profit-sharing  institutions  shall  be  established,  the  govern- 
ment will  not,  of  course,  assume  control  and  management 
thereof.  If  on  final  consideration.  Congress  shall  decide 
in  favor  of  establishing  non-profit-sharing  land-credit  in- 
stitutions, then,  of  course,  the  Federal  government  should 
assume  a  responsibility  in  the  management  and  control  of 
these  institutions. 

(4)  Government  Aid  tJirougli  Special  Privileges.  One 
of  the  most  effective  ways  the  national  government  may 
render  aid  to  farm-credit  institutions  is  by  granting  them 
special  privileges.  European  countries,  practically  without 
exception,  have  resorted  to  this  method  of  aiding  their  land- 
credit  institutions.  France  granted  the  Credit  Foncier  a 
monopoly  in  making  farm-mortgage  loans  for  twenty-five 
years.  Summary  proceedings  were  authorized  to  settle  the 
title  to  property  about  to  be  mortgaged.  The  institution 
was  permitted  to  use  revenue  officers  free  in  making  col- 
lections. The  Landschaften  were  authorized  to  resort  to 
special  proceedings  in  collecting  interest  on  principal  and 
in  foreclosure  proceedings.  It  is  not  probable  any  one  will 
advocate  that  land-credit  banks,  in  this  country,  should 
be  allowed  to  follow  any  summary  proceedings  in  fore- 
closure suits.  In  this  country,  every  man  must  have  his 
day  in  court.  The  Commission  Bill,  the  Sub-committee 
Bill  and  the  Senate  Committee  Bill  propose  to  grant  special 
privileges  in  three  important  ways,  as  follows : 

a.  In  the  exclusive  use   of   the  name   "  National,"  to 
designate  these  banks  from  all  others. 

b.  In  making  their  bonds  a  legal  investment  for  certain 
funds. 

c.  In  exempting  the  banks,  their  bonds,  notes  and  mort- 
gages from  all  Federal,  State  and  local  taxation. 


2i6  Land  Credits 

a.  Aid  through  the  exclusive  use  of  a  name  which  indi- 
cates that  the  institution  is  authorized,  supervised  and  in- 
timately connected  with  the  national  government.  The 
Commission  bill  authorizes  the  organization  of  National 
Farm  Land  Banks,  and  prohibits  other  farm-loan  com- 
panies from  using  the  word  "  National "  as  a  part  of  their 
name  or  title.  The  exclusive  use  of  the  word  "  National  " 
is  a  very  valuable  privilege  to  grant  to  a  private  banking 
institution.  To  the  average  citizen,  this  word  means  very 
much.  By  allowing  the  exclusive  use  of  its  name,  the 
Federal  government  grants  its  good  faith  and  credit.  There 
are  forty-eight  States  in  the  Union.  Some  of  them  are 
great  in  population,  in  wealth,  in  resources,  in  the  extent 
of  their  commerce  and  in  the  magnitude  of  their  indus- 
tries. But  none  of  them  in  any  line  compares  with  the  na- 
tional government.  We  have  many  States.  We  have  one 
nation.  Everywhere  the  power  of  the  national  government 
is  recognized.  The  institution  that  goes  forth  bearing  its 
name,  carries  with  it  a  part  of  its  power,  prestige,  influence 
and  credit.  In  this  name,  the  public  has  confidence  and 
the  exclusive  right  to  its  use,  confers  a  privilege  of  sub- 
stantial monetary  value.  The  authors  of  the  Commission 
Bill  propose  to  freely  grant  private  banking  institutions 
the  exclusive  right  to  use  a  name  which  carries  with  it  the 
good  will  of  the  Government,  but  strenuously  oppose  the  use 
of  the  credit  of  the  Government  to  insure  the  farmers  of 
the  United  States  adequate  credit  at  a  low  rate  of  inter- 
est. 

b.  Aid  hy  making  farm-mortgage  "bonds  legal  investments 
for  public  and  trust  funds.  One  of  the  effective  ways  to 
aid  farm-mortgage  credit  is  by  statute  to  make  farm-mort- 
gage bonds  legal  investments  for  trust  funds  and  for  cer- 
tain funds  belonging  to  the  Government.  This  is  a  special 
privilege  European  countries  almost  without  exception  grant 
to  their  public  or  semi-public,  non-profit-sharing,  land- 
credit  institutions.     This  special  privilege  is  not  generally 


Government  Aid  2\J 

granted  to  the  bonds  of  private,  joint-stock  profit-sharing 
institutions.  Cahill  in  his  report  (S.  Doc.  17,  63rd  Con- 
gress, page  71)  referring  to  the  mortgage-bonds  of  the 
joint-stock  land-banks  of  Germany  says :  "  The  bonds  of 
these  banks  with  the  exception  of  those  issued  by  the  six 
Bavarian  banks,  do  not  possess  the  privilege  of  being  recog- 
nized as  trustee  investments."  The  three  officially  en- 
dorsed bills  all  confer  special  privileges  upon  the  bonds 
to  be  issued  by  the  proposed  land  banks,  although  these 
banks  are  purely  private,  joint-stock  corporations.  The 
Commission  Bill  makes  the  bonds  issued  by  the  land  banks 
available  as  legal  investment  for  various  public  and  trus- 
tee funds.  The  Sub-committee  and  the  Senate  Committee 
bills  authorize  the  trustees  of  the  United  States  Postal 
Savings  depositories  to  purchase  Federal  farm-loan  bonds 
in  lieu  of  United  States  bonds  or  other  securities  for  the 
purpose  of  investing  postal  savings  funds.  To  say  by 
statute,  that  the  bonds  issued  by  these  banks,  shall  be  placed 
upon  a  par  with  government  bonds  is  conferring  a  most 
valuable  privilege.  To  declare  by  law,  that  certain  securi- 
ties issued  by  a  private  banking  institution  shall  be  re- 
garded as  a  safe  investment  for  funds  held  in  trust  by 
individuals  and  public  officers,  in  effect,  is  a  guaranty  of 
their  payment.  To  authorize  public  officials,  to  invest  gov- 
ernment funds  in  these  bonds  is  to  say  to  private  investors, 
do  likewise.  But  these  provisions  serve  another  purpose. 
They  make  a  market  for  these  bonds.  Through  these 
provisions,  these  land  banks  will  sell  many  of  their  bonds. 
The  special  privilege  thus  conferred  upon  these  private 
land  banks  is  government  aid  of  the  most  substantial 
character.  If  our  land-credit  institutions  were  public  or 
semi-public  corporations,  if  they  were  non-profit-sharing, 
if  they  had  an  altruistic  purpose,  then,  of  course,  there 
could  be  no  valid  objection  to  giving  their  mortgage  bonds 
special  privileges.  But  European  nations  have  recognized 
the  impropriety  of  giving  the  securities  of  one  private  in- 


2i8  Land  Credits 

stitution  recognition  above  another.  Generally  speaking, 
the  American  people  are  opposed  to  granting  special  privi- 
leges to  private  corporations.  The  difficulty  is  that  the 
"  officially  endorsed "  bills  create  private,  profit-sharing 
banks,  and  apply  to  them  the  privileges  European  countries 
have  as  a  rule  extended  only  to  non-profit-sharing  institu- 
tions, operated  in  the  interest  of  the  public.  The  way  out 
is  not  to  withdraw  the  special  privileges,  but  change  the 
character  of  the  institution.  It  is  appropriate  to  confer 
special  privileges  upon  a  public  or  serai-public  institution, 
created  and  managed  for  the  public  good.  It  is  doubtful 
whether  or  not  the  national  government  can  with  propriety 
and  safety  extend  aid  of  this  kind  when  the  benefit  from 
such  privileges  must  necessarily  in  part  inure  to  capital  in- 
vested in  purely  private  corporations. 

c.  Government  Aid  through  Exemption  from  Taxation. 
The  three  "  officially  endorsed  "  bills  exempt  from  Federal, 
State  and  local  taxation: 

1.  The  farm  mortgages  and  the  farm-mortgage  bonds 
issued  thereon;  2.  The  land  banks,  their  capital  stock, 
reserves,  surpluses,  undivided  profits,  and  the  income  there- 
from. 

There  are  two  propositions  involved  in  this  —  one  pro- 
poses to  exempt  the  farmers'  mortgages  and  the  bonds  is- 
sued thereon  from  taxation ;  the  other  to  exempt  the  banks 
and  all  their  property,  except  real  estate,  from  taxation. 
The  object  of  the  tax-exemption  provision  is  to  reduce  the 
rate  of  interest  paid  by  farmers  on  farm  mortgages.  Evi- 
dently, if  the  farm  mortgages  and  the  bonds  issued  thereon 
are  both  subject  to  taxation,  there  can  not  be  a  low  rate 
of  interest  maintained  for  farmers.  As  has  been  said,  to 
tax  the  farm,  the  farm  mortgage  and  the  farm-mortgage 
bond  would  be  triple  taxation.  Apparently  there  is  gen- 
eral approval  of  the  idea  to  exempt  the  mortgages  and 
bonds  from  taxation.  But  the  Federal  government  thereby 
takes  vast  revenue  from  the  State  and  local  governments. 


Government  Aid  219 

Here  again  appears  an  inconsistency  on  tlie  part  of  those 
who  so  vehemently  oppose  government  aid  by  use  of  the 
Government's  funds  or  credit,  but  do  not  hesitate  to  force 
tlie  States  and  local  governments  to  relinquish  revenue 
and  credit  to  make  the  land-credit  institutions  successful. 
It  must  also  be  borne  in  mind  that  to  relieve  one  class 
of  property  from  taxation  always  places  an  additional 
burden  upon  other  property.  So  in  the  end,  somebody 
must  pay  the  bill.  In  Europe,  generally  only  non-profit- 
sharing  institutions  are  exempted  from  taxation.  However 
just  and  necessary  it  may  be  to  exempt  bonds  and  mortgages 
from  taxation,  the  proposition  to  exempt  profit-sharing 
banks  from  taxation  is  wholly  unwarranted.  This  is  not 
done  in  Europe.  The  object  of  this  provision  is  to  induce 
capital  to  invest  in  the  stock  of  land  banks.  It  is  entirely 
too  remote  to  say  that  the  farmers  will  get  the  benefit 
of  the  exemption  to  banks.  Such  will  not  be  the  ease.  It 
is  a  very  great  privilege  to  exempt  private  property  of  any 
kind  from  taxation.  Only  non-profit-sharing  institutions, 
or  property  used  for  religious  or  philanthropic  purposes 
should  be  exempt  from  taxation.  It  will  be  profitable  to 
ascertain  what  is  the  practice  in  some  of  the  European 
countries. 

The  sixteen  State,  provincial,  and  district  mortgage- 
credit  banks  of  Germany  are  exempt  from  stamp  duties. 
In  enumerating  the  distinctive  features  of  these  banks, 
Mr.  Cahill,  Senate  Document  17,  page  57,  says: 

"  Exemption  from  stamp  duties  as  a  rule,  and  often  from 
court  fees." 

In  view  of  the  proposition  to  exempt  mortgages,  bonds, 
and  also  the  capital  and  surplus  of  the  banks  and  the  in- 
come therefrom,  from  all  Federal,  State  and  local  taxation, 
it  will  be  well  to  bear  in  mind  that  this  privilege  is  not 
generally  extended  to  European  land-credit  institutions  ex- 
cept to  purely  non-profit-sharing  or  benevolent  institutions. 

The  Provincial  Mortgage  Institute  of  Lower  Austria, 


220  Land  Credits 

though  a  public,  non-profit-sharing  institution,  is  not  ex- 
empt from  taxation.  This  is  shown  in  the  statement  refer- 
ring to  this  institution  b}^  Friedricli  Eedl,  a  Director  (S. 
Doc.  214,  page  198,  63rd  Congress),  in  which  he  says: 

"  A  government  tax  of  one-half  per  cent,  is  levied  on  the 
coupons  of  the  bonds ;  this  tax  is  borne  by  the  institute." 

In  Italy  the  long-time  loans,  made  by  savings  banks,  are 
not  exempt  from  taxation,  as  is  shown  by  the  statement  of  a 
director  of  the  Florence  Savings  Bank,  before  the  United 
States  Commission.  After  referring  to  the  rate  of  inter- 
est charged,  he  says :  "  To  this  must  be  added  a  charge 
for  income  tax."     (S.  Doc.  214,  63rd  Congress,  page  41.) 

That  the  savings  banks  of  Italy  and  long-term  mortgages 
made  thereby  are  not  exempt  from  taxation,  is  shown  by 
the  following  statement  printed  in  the  evidence  taken  by 
the  United  States  Commission  (S.  Doc.  214,  page  97,  63rd 
Congress).  Referring  to  annual  payments  made  by  bor- 
rowers, it  is  said : 

"  The  annual  payments  comprise  the  amortization  in- 
stallment, interest,  income  tax,  commission,  and  manage- 
ment expenses,  which  must  not  exceed  45  centimes  on  each 
lOO  francs  of  the  loan,  and  lastly,  the  mortgagor's  share 
of  revenue  and  stamp  duties  which  are  paid  on  his  behalf 
directly  by  the  institution." 

That  the  mortgages  taken  by  the  Hungarian  Land  Credit 
Institution,  are  not  exempt  from  taxation  is  shown  by  a 
statement  made  by  Count  Hoyos,  director,  in  questions  and 
answers  printed  in  Senate  Document  214,  page  158,  63rd 
Congress,  as  follows : 

"  Q.  What  would  your  institution  charge  for  making 
the  loan? 

"  A.     Nothing. 

"  Q.  Every  person  who  comes  to  you  and  applies  for  a 
$10,000  loan,  you  give  him  $9,900  and  you  keep  $100  as 
a  guaranty  fund  ? 

"  A.     We  only  keep  $10  in  cash  for  the  guaranty  fund. 


Government  Aid  221 

One  hundred  dollars,  of  which  $10  is  in  cash  and  $90  on 
paper,  to  be  called  in  when  losses  occur,  constitutes  the 
guaranty  fund.  Thus  the  cash  payments  are  $10  for 
the  guaranty  fund  and  $70.70  for  government  taxes." 

Borrowers  from  the  joint-stock  profit-sharing  banks  of 
Germany  are  not  exempt  from  taxation,  on  their  mortgages. 
The  President  of  the  Bavarian  Council  of  Agriculture  in 
discussing  the  costs  of  securing  loans  from  these  institutes 
(S.  Doc.  214,  page  268,  63rd  Congress)  enumerates 
among  these  costs : 

"The  stamp  duty  collected  by  the  German  Empire, 
amounting  to  one-half  per  cent.,  as  well  as  the  imperial 
'  Talon-tax,'  an  annual  tax  of  about  one-fiftieth  per  cent." 

The  Credit  Union  of  Wiirttemberg  (Germany)  is  not 
exempt  from  taxation  although  it  is  a  non-profit-sharing 
institution,  in  the  sense  that  all  profits  ultimately  go  to 
the  borrower.  The  managing  director  (S.  Doc.  214,  page 
301,  63rd  Congress),  says: 

"  Stamp  taxes  are  payable  on  the  bonds  of  the  associa- 
tion. The  Association  also  pays  an  income  tax  on  its 
net  annual  earnings.  The  total  tax  for  1912  was  60,000 
marks.  The  item  of  taxes  is  charged  against  the  cost  of 
administration." 

The  Ehenish  Mortgage  Bank  (Germany)  is  not  exempt 
from  taxation.  This  is  shown  by  a  statement  by  Mr. 
Wolff  (S.  Doc.  214,  page  322,  63rd  Congress),  as  fol- 
lows: 

"  The  cost  of  selling  is,  tax  to  government,  one-half  of 
1  per  cent. ;  commission,  1  per  cent. ;  commission  for  agent, 
one-fourth  of  1  per  cent." 

There  are  fourteen  land-credit  associations  which  make 
loans  on  first  mortgages  in  Denmark,  In  1912  they  had 
$440,860,000  in  outstanding  loans.  These  institutes  are 
similar  to  the  Landschaften  of  Germany  and  are  free  from 
stamp  taxes. 

The  Prussian  Central  Land  Credit  Joint  Stock  Company 


222  Land  Credits 

of  Berlin,  one  of  the  largest  mortgage  banks  in  the  world, 
in  1911,  paid  in  State  and  local  taxes  alone  (not  including 
national  taxes)  £22,801,  or  $110,812.i  This  was  about 
one-third  of  the  administration  charges  of  this  great  mort- 
gage company.  There  is  no  precedent  among  European 
governments  for  the  exemption  of  profit-sharing  banks  from 
taxation. 

Aside  from  the  question  of  the  propriety  of  exempting 
private  banks  from  taxation,  there  is  also  the  important 
question  of  the  constitutional  power  of  Congress  to  ex- 
empt farm  mortgages,  farm-mortgage  bonds,  and  the  na- 
tional land  banks  from  taxation  by  the  States  and  local 
governments.  This  is  an  important  and  interesting  prob- 
lem and  should  be  thoroughly  considered  before  final 
action  is  taken  thereon.  To  aid  the  ]\Iembers  of  Congress 
and  others  who  are  interested  in  land-credit  legislation 
the  author  of  this  work  prints  herewith,  as  Appendix  "  A," 
a  discussion  of  this  constitutional  question  prepared  by 
Mr.  H.  W.  Edgerton,  Research  Assistant,  Legislative 
Eeference  Division,  Library  of  Congress,  under  the  direc- 
tion of  lion.  Herbert  Putnam,  Librarian. 

(5)  Government  Aid  through  Extension  of  Credit.  The 
Federal  government  may  extend  its  credit  directly  or  in- 
directly. As  heretofore  indicated,  the  Federal  government 
will  extend  its  credit  in  every  single  step  taken  to  establish 
a  national  svstem  of  rural  credits.  In  enacting  a  national 
rural  credit  law,  in  establishing  national  rural  credit  in- 
stitutions, in  giving  these  institutions  the  exclusive  use  of 
the  name  "  National,"  in  assuming  to  supervise,  regulate  or 
control  them,  and  in  all  kinds  of  special  privileges  granted 
them,  the  Federal  government  is  using  its  credit  to  aid 
these  institutions.  It  may  be  said  that  this  is  indirect  use 
of  the  Government's  credit.  Nevertheless,  it  is  real,  sub- 
stantial, effective.     In  principle,  there  is  no  real  difference 

1  Cahill's  Agricultural  Credit  and  Cooperation  in  Germany, 
Senate  Doc.  Ko.  17,  Cord  Congress,  p.  74. 


Government  Aid  223 

between  direct  and  indirect  aid.  In  both  cases,  the  Govern- 
ment recognizes  the  necessity  of  the  aid,  and  the  obligation, 
the  power,  and  the  ability  of  the  Government  to  render  it. 
There  is  a  principle  of  law  that  one  can  not  do  indirectly 
that  which  he  is  prohibited  from  doing  directly.  If  there 
is  any  real,  substantial,  and  satisfactory  reason  why  the 
Federal  government  should  not  extend  direct  aid  to  promote 
agricultural  credit,  then  the  same  objection  could  be  urged 
against  extending  indirect  aid.  If  it  be  admitted  that  the 
Federal  government  must  use  its  credit,  in  this  great  na- 
tional undertaking,  the  manner  in  which  this  credit  is  ex- 
tended is  a  question  of  policy,  and  not  of  principle.  The 
conclusion  is  inevitable,  that  the  Federal  government  should 
extend  its  credit  directly  so  far  as  it  may  be  necessary  to 
insure  the  success  of  our  land-credit  institutions.  The 
real  problem  is,  not  shall  the  Government  use  its  credit, 
but  in  what  form  shall  the  credit  be  extended.  In  decid- 
ing this  question,  we  should  have  this  fact  constantly  in 
our  minds,  via. :  That  the  amount  of  credit  and  the  rate 
of  interest  obtained  under  any  system  of  land-credit  de- 
pend upon  the  absolute  security  of  the  mortgage  bonds. 
These  bonds,  running  for  a  third  of  a  century,  or  longer, 
can  not  be  sold  in  large  quantities  at  a  low  rate  of  interest, 
if  there  be  any  question  about  their  payment.  These  bonds 
must  be  made  secure.  It  would  be  a  great  public  calamity, 
to  bring  into  existence  land-credit  institutions,  authorized 
to  issue  farm-mortgage  bonds,  to  run  for  from  35  to  60 
years,  with  any  doubt  as  to  their  payment.  The  United 
States  can  not  afford  to  do  this.  If  Congress  shall  create 
land-credit  institutions,  those  institutions  must  not  be  per- 
mitted to  issue  bonds  or  debentures  about  the  payment  of 
which  there  can  be  the  slightest  question.  This  is  due 
to  the  farmers,  to  investors,  to  the  great  industry  of  agri- 
culture and  to  the  nation  at  large.  It  is  almost  as  es- 
sential that  farm-mortgage  bonds  shall  be  good  as  it  is 
that  we  shall  have  a  sound  currency  system.     Unsound 


224  Land  Credits 

currency  in  circulation  could  be  little  worse  than  the  dis- 
tribution of  insecure  farm-mortgage  bonds  among  the  peo- 
ple. Money  must  be  good  or  it  will  not  circulate  freely. 
Likewise,  farm-mortgage  bonds  must  be  good  or  they  will 
not  sell.  Mortgage  bonds  are  not  money,  but  as  they  have 
been  issued  by  European  land-credit  institutions  they  are 
Just  as  secure.  In  establishing  a  new  system  of  banking 
and  currency,  every  precaution  was  taken  to  make  the  new 
currency  good  beyond  question.  Back  of  our  new  currency 
were  placed  the  capital,  reserves,  and  resources  of  the  mem- 
ber banks,  the  capital,  reserves  and  resources  of  the  Federal 
reserve  banks,  and  finally  the  guaranty  of  the  Federal  gov- 
ernment. No  one  questions  the  wisdom  of  this  legislation. 
All  recognize  that  there  must  be  no  question  about  the 
quality  of  our  circulating  medium  —  it  must  all  be  as  good 
as  gold.  As  the  national  government  made  its  new  cur- 
rency good  —  so  it  must  make  farm-mortgage  bonds 
good,  and  should  not  permit  them  to  be  issued  under  any 
other  conditions.  Frederick  the  Great  made  the  deben- 
tures of  the  Landschaften  of  Silesia  good.  He  did  it  by 
making  all  lands  of  a  certain  class  stand  as  security  for 
all  the  debentures  issued.  These  lands  with  unlimited 
liability  stood  as  security  for  every  debenture  issued.  The 
Federal  government,  if  it  acts  at  all,  must  act  wisely.  The 
United  States  —  the  richest  and  most  enlightened  nation 
of  the  world,  can  certainly  do  as  well  as  Frederick  the 
Great  did  a  hundred  and  fifty  years  ago.  There  is  one 
way  the  Federal  government  may  make  farm-mortgage 
bonds  good;  it  may  guarantee  their  payment.  This  many 
other  nations  have  done.  This  the  Federal  government 
should  do  unless  it  can  devise  some  other  method  equally 
effective.  It  may  not  be  necessary  that  the  United  States 
shall  pledge  its  credit  to  secure  the  payment  of  the  bonds 
issued  by  land-credit  institutions,  but  it  is  incumbent  that 
the  Federal  government  shall  devise  some  means,  method, 
or  scheme  whereby  these  bonds  may  be  issued  under  con- 


Government  Aid  225 

ditions  which  will  make  them  a  perfectly  safe  investment. 
Those  who  oppose  the  use  of  the  Government's  credit,  to 
secure  the  payment  of  farm-mortgage  bonds,  should  set 
themselves  to  the  task  of  devising  the  plan  by  which  these 
bonds  may  be  issued  with  absolute  safety  without  the  Gov- 
ernment's guarantee  behind  them.  There  are  ways  this 
may  be  done.  There  are  certain  risks  in  every  line  of 
business.  Likewise  there  are  certain  risks  in  the  farm-loan 
business.  There  may  be  a  bad  title,  or  over-appraisement ; 
forces  of  nature  may  destroy  the  value  of  the  land ;  floods, 
drouths,  insects  and  disease  may  cause  failure  of  crops ; 
dishonesty  and  fraud  may  cause  losses.  These  things  will 
not  be  general,  but  they  will  come  now  and  then.  General 
financial  conditions,  business  depression,  low  prices  of  farm 
products,  may  affect  the  value  of  land  and  the  ability  of 
farmers  to  pay.  Preparation  must  be  made  to  meet  such 
emergencies.  Institutions  issuing  farm-mortgage  bonds 
must  have  a  fund  set  aside  for  this  purpose.  This  is  called 
a  reserve,  guaranty  or  insurance  fund.  Any  land-credit  in- 
stitution is  sound  that  has  a  sufficient  reserve  fund  to  meet 
losses  when  they  come.  All  that  is  necessary  to  make  the 
farm-mortgage  bonds  absolutely  safe  is  to  require  the  ac- 
cumulation of  an  ample  reserve,  guaranty,  or  insurance 
fund  to  meet  all  possible  losses.  Now,  the  Federal  govern- 
ment has  the  power  to  see  that  this  is  done. 

(6)  Federal  Aid  through  the  Use  of  Government 
Funds.  There  are  a  number  of  ways  by  which  governments 
have  used  their  funds  in  aid  of  agricultural  credit.  Among 
these  may  be  mentioned  the  following:   (a)   direct  loans, 

(b)  by  donations  or  gifts  to  land-credit  institutions  to  en- 
able them  to  supply  money  cheaper  or  in  more  abundance, 

(c)  by  subscription  to  the  capital  stock  of  land  banks,  (d) 
by  giving  money  to  land  banks  to  be  used  as  a  reserve, 
guaranty  or  insurance  fund.  Bills  were  introduced  in  the 
Sixty-third  Congress  proposing  that  the  Federal  govern- 
ment use  its  funds  in  many  different  Avays,  in  the  aid  of 


226  Land  Credits 

agricultural  credit.  The  National  Grange  and  the  Farmers' 
Union  endorsed  the  general  proposition  to  use  the  cash  of 
the  Government  to  provide  ample  and  cheap  credit  for  the 
farmers.  The  United  States  Commission  and  the  Ameri- 
can Commission  reported  against  the  proposition.  The 
Senate  Committee  on  Banking  and  Currency  reported 
against  it.  The  Sub-committee  on  rural  credit  of  the  two 
Houses  reported  a  bill  which  authorized  the  Federal  govern- 
ment, under  approval  of  the  Federal  Eeserve  Board,  to  pur- 
chase not  to  exceed  in  any  one  year,  fifty  million  dollars' 
worth  of  farm-mortgage  bonds.  The  Sub-committee  of 
the  Senate  subsequently  withdrew  its  endorsement.  In 
both  the  Senate  and  House  there  was  a  great  division  of 
sentiment.  The  McCumber  amendment  was  placed  as  a 
"  rider "  upon  the  agricultural  appropriation  bill.  This 
amendment  provided  for  the  use  of  $10,000,000  as  an  oper- 
ating fund,  with  which  to  make  loans  to  farmers.  This 
brought  the  question  of  the  use  of  the  cash  of  the  Govern- 
ment in  aid  of  agricultural  credit  directly  before  the  two 
Houses  of  Congress.  The  House,  following  the  recommen- 
dation of  the  Committee  on  Agriculture,  eliminated  the 
McCumber  amendment,  but  amended  the  Senate  Commit- 
tee Bill,  by  inserting  the  bond-purchasing  proposition  em- 
bodied in  the  Sub-committee  Bill.  In  lieu  of  all  these 
propositions.  Congress  appointed  a  joint-committee  com- 
posed of  Members  of  the  House  and  Senate  to  report  a  bill 
to  Congress  not  later  than  January  1,  1916.  Thus  the 
Sixty-third  Congress  adjourned,  with  the  proposition  to  use 
the  cash  of  the  Federal  government  in  aid  of  agricultural 
credit  still  undetermined.  When  the  Sixty-fourth  Con- 
gress shall  convene  in  December,  1915,  the  contest  will 
be  renewed. 

3.  Some  Arguments  in  Favor  of  Government  Aid.  Some 
of  the  arguments  in  favor  of  the  use  of  government  funds 
or  its  credits  to  aid  agricultural  credit  will  be  presented 
under  the  following  heads : 


Government  Aid  227 

(1)  The  importance  of  agriculture. 

(2)  Danger  of  centralization  of  population  in  town  and 
cities, 

(3)  Farm  credits  a  means  to  promote  a  national  policy. 

(4)  Lack  of  credit. 

(1)  The  Importance  of  AgricuUure.  In  determining 
the  extent  to  which  the  Federal  government  should  use  its 
credit  or  cash  in  aid  of  agricultural  credit,  the  importance 
of  agriculture  as  an  industry  must  be  taken  into  considera- 
tion. Agriculture  is  our  chief  industry.  It  is  a  funda- 
mental industry.  Through  it  comes  the  food-supply  for 
our  population.  Our  population  is  rapidly  increasing.  At 
the  rate  of  increase  heretofore  maintained,  wathin  a  half 
of  a  century  we  will  have  200,000,000  people  in  the  United 
States.  These  people  must  be  fed.  This  food  must  com-e 
from  the  farm.  Even  in  peace  we  should  not  depend  on 
other  countries  to  feed  our  people.  But  W'ar  may  come, 
when  food  can  not  be  obtained  abroad.  The  welfare  of  our 
people,  the  independence  of  our  nation,  the  very  life  of 
the  Kepublic  depend  upon  the  growth  and  development  of 
agriculture.  There  is  now  a  clamor  for  better  provision 
for  our  national  defense.  There  is  a  demand  for  a  large 
increase  in  our  army  and  navy.  In  a  measure,  at  least, 
these  demands  will  be  met.  Five  hundred  million  dollars 
expended  in  this  direction  would  not  go  very  far.  But  an 
army  and  navy  would  be  of  little  use,  unless  the  soldiers  and 
seamen  are  properly  fed.  A  larger  army  in  the  field  and  a 
greater  navy  on  the  sea  would  not  uphold  our  nation's  honor 
long,  if  our  people  at  home  were  suffering  for  food.  An 
adequate  supply  of  food-products  is  essential  to  our  na- 
tion's greatness,  our  national  defense,  and  national  exist- 
ence. To  promote  the  prosperity  and  expansion  of  the  in- 
dustry which  supplies  us  with  food,  we  may  wisely  use 
whatever  cash  or  credit  that  is  necessary.  It  should  also 
be  remembered  that  the  prosperity  of  all  other  industries 
depends  largely  upon  agricultural  prosperity.     The  farm- 


228  Land  Credits 

ers  constitute  more  than  one-third  of  our  population.  The 
wealth  they  produce  is  distributed  to  all.  A  very  large  per- 
centage of  our  population  is  engaged  in  industries  and  occu- 
pations which  draw  their  support  almost  entirely  from 
agriculture.  Any  benefits  or  advantages  bestowed  upon 
farmers  quickly  and  certainly  pass  to  others.  Cash  from 
the  National  Treasury  which  adds  to  the  productiveness  of 
the  farm  flows  out  into  all  other  channels  of  trade,  com- 
merce and  industry,  and  finally  comes  back  to  the  Federal 
government  in  increased  volume.  There  is  no  better  way  to 
strengthen  the  national  credit  than  to  use  a  part  of  it  in 
providing  adequate  credit  for  agriculture.  There  is  no 
saner  or  wiser  way  to  increase  the  cash  in  the  National 
Treasury  than  to  use  a  part  of  it  in  providing  ample  credit 
facilities  for  our  farmers.  To  withhold  whatever  cash  or 
credit  that  may  be  necessary  to  insure  the  success  of  this 
great  national  undertaking,  will  limit  and  dwarf  the  very 
sources  of  national  credit,  and  the  evil  consequences  there- 
from will  be  visited  upon  all  our  people. 

(2)  Danger  of  Centralization  of  Population  in  the 
Towns  and  Cities.  The  drift  of  our  population  to  our 
towns  and  cities  has  become  a  national  menace.  From 
1900  to  1910,  our  rural  population  increased  11  per  cent.; 
our  urban  population  increased  34  per  cent.  In  these  sta- 
tistics there  is  a  warning  to  those  entrusted  with  the  power 
of  directing  our  national  policies.  These  statistics  point 
the  way;  they  suggest  the  proper  course  to  pursue;  they 
remind  us  that  every  legitimate  and  proper  means  should 
be  used  to  prevent  the  over-population  of  our  towns  and 
cities.  Ten  per  cent,  of  our  people  now  reside  in  three  of 
our  greal;  cities  —  New  York,  Chicago  and  Philadelphia. 
Thirty  years  ago  there  were  two  men  in  the  country  to 
produce  food  for  every  man  in  the  city;  now  one  man  in 
the  country  must  produce  surplus  food  for  two  men  in  our 
towns  and  cities.  But  the  strength  and  stability  of  our 
nation,  the  character  of  our  citizenship,  the  physical,  in- 


Government  Aid  229 

tellectual,  and  moral  development  of  our  people,  in  a  meas- 
ure, depend  upon  the  keeping  of  a  larger  percentage  of  our 
population  engaged  in  agricultural  pursuits.  The  Consti- 
tution confers  on  Congress  the  power,  and  the  duty  to  pro- 
vide for  the  general  welfare.  This  duty  should  not  be 
shirked  and  this  power  should  be  used  whenever  the  general 
welfare  is  in  jeopardy.  Congress  may,  and  should,  use  the 
funds  in  the  National  Treasury  to  provide  for  the  general 
welfare.  Whatever  promotes  the  general  prosperity  of  agri- 
culture will  tend  to  hold  our  people  on  the  farm.  The  ex- 
perience of  other  countries  demonstrates  that  proper  credit 
facilities  will  contribute  largely  to  agricultural  prosperity. 
The  lack  of  credit,  at  reasonable  cost,  hinders  agricultural 
development,  lessens  the  profits  of  farmers,  makes  the  farm 
less  attractive,  and  drives  farmers  into  other  occupations. 
The  want  of  credit  is  a  potent  factor  in  centralizing  our 
population  in  our  great  centers  of  trade  and  commerce. 
This  condition  must  be  reversed.  Where  now  there  is  a 
lack  of  credit,  a  supply  of  credit  must  be  provided.  To 
attain  this  end,  the  Federal  government  can  not  justly  or 
wisely  withhold  its  credit  or  its  cash. 

(3)  A  National  Policy  to  Be  Promoted.  Back  of  this 
movement  to  organize  farm  credits,  is  a  national  policy. 
No  government  has  ever  established  a  system  of  farm 
credits  merely  as  a  gift  to  its  farmers.  The  rights  of  our 
farmers,  their  interests  and  their  welfare  can  not  and  should 
not  be  ignored.  But  the  object  of  rural  credit  legislation, 
is  not  merely  to  give  farmers  something  more  than  others 
have.  True,  the  farmers  have  a  right  to  ask  better  credit 
facilities.  As  a  matter  of  pure  justice  they  are  entitled  to 
more  credit  and  cheaper  credit.  Our  present  credit  in- 
stitutions do  not  give  farmers  their  just  share  of  the 
credit  power  of  the  country.  Agriculture  pays  a  higher 
rate  of  interest  than  other  industries  pay.  Our 
farmers  have  less  credit  and  pay  higher  rates  of  interest  than 
the  farmers  of  European  countries.    As  a  matter  of  right  our 


230  Land  Credits 

farmers  are  entitled  to  relief.  But  European  countries 
gave  their  farmers  credit  to  carry  out  a  great  national 
policy,  deemed  essential  to  the  national  welfare.  The 
farmers  profited  thereby.  Through  their  prosperity,  these 
nations  were  strengthened.  All  their  people  shared  the 
benefits.  Why  should  the  Federal  government  concern  it- 
self about  rural  credits?  Why  should  we  enact  national 
legislation  on  the  subject?  Why  not  leave  the  farmers 
to  their  fate?  Whj  not  let  each  State  care  for  its  own 
farmers?  The  reason  is  obvious.  The  subject  is  nation- 
wide in  its  influence.  At  last,  we  have  recognized  that  the 
public  good  may  be  promoted  by  giving  our  farmers  ade- 
quate credit,  at  reasonable  cost.  The  man  who  looks  upon 
the  agitation  for  better  credit  facilities  for  agriculture,  as 
merely  a  movement  to  give  a  bonus  to  our  farmers,  has  a 
narrow  and  erroneous  conception  of  the  subject.  If  not 
to  inaugurate  a  new  national  policy,  it  is  to  reenforce  an 
old  one.  The  national  government  following  the  lead  of 
other  nations,  proposes  to  utilize  credit,  as  a  means  to  en- 
courage agriculture  and  promote  its  development.  It  is  not 
a  question  of  satisfying  the  farmers.  It  is  a  question  of 
aiding  all,  through  aid  to  the  farmers.  We  may  well  hesi- 
tate to  vote  money  out  of  the  National  Treasury  simply  to 
benefit  the  people  in  a  particular  business.  When,  how- 
ever, a  national  policy  is  involved,  the  Federal  government 
can  not  withhold  its  credit  or  its  cash  merely  because  those 
employed  in  a  certain  business,  or  residing  in  a  certain 
section,  will  receive  direct  benefit  thereby.  Every  year  the 
national  government  is  using  hundreds  of  millions  of  dol- 
lars in  promoting  national  policies  which  confer  direct  and 
special  benefits  upon  only  a  part  of  our  people.  We  do  not, 
however,  on  this  account,  abandon  our  national  policies  and 
refuse  our  appropriations. 

(4)  Lack  of  Agricultural  Credit.  In  discussing  the 
question  of  government  aid,  the  absence  of  agricultural 
credit  must  be  taken  into  consideration.     The  credit  power 


Government  Aid  231 

of  the  country  is  in  the  control  of  our  banks.  They  ex- 
tend comparatively  little  credit  to  farmers.  In  another 
chapter  entitled  "  Discriminations  against  Farmers/'  sta- 
tistics along  this  line  have  been  quoted.  In  this  connec- 
tion they  may  be  repeated  in  part.  Our  banks  have  $3,132,- 
000,000  in  capital  stocks.  Their  loans  on  farm  lands 
amount  to  $5-12,115,491;  they  have  loaned  upon  real 
estate  other  than  farm  lands  $2,965,000,000.  These  figures 
show  that  the  credit  power  of  existing  banking  institutions 
has  been  used  to  improve  and  develop  the  real  estate  of 
towns  and  cities  rather  than  for  the  improvement  of  the 
farms.  The  Secretary  of  Agriculture,  in  his  1914  report, 
estimates  that  our  banks  have  loaned  to  farmers  in  short- 
time  loans,  on  personal  security,  $1,750,000,000.  Accord- 
ing to  these  official  statistics  our  banks  have  in  loans  and 
investments,  in  bonds  and  other  securities,  $20,873,000,000. 
Less  than  one-ninth  of  their  credit  power  is  extended  to 
farmers,  though  they  constitute  one-third  of  the  population. 
The  report  of  the  Comptroller  of  the  Treasury  for  the  fiscal 
year  ending  June  30,  1914,  shows  that  our  banks  had  in 
loans  and  in  investments,  in  stocks  and  bonds,  $9,711,000,- 
000.  In  round  numbers,  one-half  of  the  credit  power  of 
our  banking  institutions  has  been  extended  to  corpora- 
tions ;  one-tenth,  in  all  kinds  of  loans,  to  farmers ;  and  nine- 
tenths  to  non-farmers.  Now,  it  is  not  necessary  to  criticise 
our  bankers.  Certainly  they  have  no  ill-will  against  the 
farmers.  This  flow  of  credit  to  our  cities,  into  the  chan- 
nels of  trade  and  commerce  has  been  natural.  The  cities, 
the  corporations,  trade  and  commerce  have  out-bid  agricul- 
ture for  credit.  The  merchants,  the  manufacturers,  the 
middle-men,  the  promoters,  the  traders,  the  speculators  have 
been  in  close  touch  with  our  credit  institutions.  The  farm- 
ers live  in  more  remote  sections,  and  besides  they  have  been 
busy  on  their  farms.  Credit  does  not  follow  the  flag.  The 
channels  into  which  it  flows  are  determined  by  profits,  not 
by  patriotism.     The  currents  in  which  credit  has  been  flow- 


232  Land  Credits 

ing  for  many  years  can  not  be  easily  changed.  It  is  as  dif- 
ficult as  it  is  to  change  the  natural  course  of  a  stream  of 
water.  Elvers  seldom  change  their  channels.  Sudden 
changes  are  rare,  and  are  usually  the  result  of  high-water 
or  an  over-flow.  To  aid  navigation,  the  national  govern- 
ment, through  appropriations  from  its  national  treasury, 
sometimes  finds  it  necessary  and  wise  to  change  the  course 
of  a  river.  For  long  years  past  our  national  credit  has 
been  flowing  away  from  the  farm  into  the  city,  out  of 
agriculture  into  trade,  manufacturing,  and  commerce.  We 
can  not  wisely  wait  for  a  freshet,  a  flood,  or  an  earthquake 
to  change  the  channels  in  which  credit  is  flowing.  As 
the  Federal  government  uses  its  cash  to  change  the  courses 
of  rivers  in  the  interest  of  commerce  and  navigation,  so 
it  should  use  its  cash  to  change  the  current  of  credit  toward 
agriculture,  and  thus  add  to  the  productiveness  of  our  farms 
and  to  the  prosperity  of  our  people. 

4.  The  use  of  the  funds  of  the  Government  to  purchase 
farm-mortgage  bonds,  as  proposed  in  the  Sub-committee 
Bill,  is  not  the  best  plan  of  government  aid,  viewed  from  the 
Government's  standpoint;  neither  will  it  render  the  most 
effective  aid  to  the  farmers. 

OUTLIXE    OF   DISCUSSION 

1.  The  bond-purchasing  provision  in  the  Sub-committee 
Bill  not  mandatory. 

2.  Bond-purchasing  proposition  will  not  (a)  materially 
increase  credit  power  of  land  banks  or  (b)  cause  any  re- 
duction in  interest  on  farm  loans. 

3.  Bond-purchasing  proposition  not  supported  by  the 
experience  or  practice  of  other  nations. 

4.  How  funds  or  credit  of  the  Government  may  be 
used  most  effectively  to  aid  agricultural  credit. 

(1)  The  bond-purchasing  provision  in  the  Sub-commit- 
tee Bill  is  not  mandatory.  The  bond-purchasing  provision 
of  the  Sub-committee  Bill  is  found  in  Section  30^  and  is 
as  follows: 


Government  Aid  233 

"  That  the  Secretary  of  the  Treasury  shall,  upon  applica- 
tion of  one  or  more  of  the  Federal  land  banks  herein  es- 
tablished, and  upon  the  recommendation  of  the  Federal  Ee- 
serve  Board,  purchase  from  Federal  land  banks  farm-loan 
bonds  not  previously  issued  or  sold,  in  an  amount  not  to 
exceed  $50,000,000  during  any  one  year,  and  shall  pay  for 
the  same  out  of  any  money  in  the  Treasury  not  otherwise 
appropriated." 

The  whole  matter  is  left  to  the  discretion  of  the  Federal 
Eeserve  Board.  The  Secretary  of  the  Treasury  can  pur- 
chase no  farm-mortgage  bonds,  except  upon  the  recommen- 
dation of  the  Federal  Eeserve  Board.  This  board  will  de- 
cide whether  or  not  bonds  shall  be  purchased  and  the 
amount  of  bonds  that  may  be  purchased.  Neither  the 
farmers,  the  land  banks,  nor  the  public  generally  will 
have  anything  to  say.  The  whole  proposition  will  be  con- 
trolled by  the  judgment  and  discretion  of  the  Board.  The 
amount  purchased  "  during  any  one  year  shall  not  exceed 
$50,000,000."  There  is  a  maximum  but  no  minimum 
limit.  This  doubt  and  uncertainty  will  be  embarrassing. 
The  Government  will  purchase  bonds  only  in  an  emergency. 
It  will  buy  only  when  other  investors  do  not  buy  in  large 
enough  quantities.  It  will  be  in  the  farm-mortgage  mar- 
ket only  when  there  is  an  over-supply  of  bonds.  The  Gov- 
ernment will  be  irregular  in  its  bond-purchases.  All  this 
doubt,  uncertainty  and  irregularity  will  be  confusing,  if 
not  absolutely  demoralizing  to  the  business.  It  will  be 
embarrassing  to  the  Government,  unsatisfactory  to  land- 
credit  banks,  and  lead  to  endless  complaints,  criticisms, 
and  dissatisfaction  among  farmers.  To  make  the  bond- 
purchasing  proposition  valuable,  it  should  be  mandatory  in 
some  form.  The  Government  should  be  required  to  buy  a 
certain  amount  of  bonds  annually.  Otherwise  the  moral 
effect  of  its  action  will  have  slight  influence.  Besides,  the 
Government  is  not  to  buy  these  bonds  as  a  permanent  in- 
vestment.    It  might  have  fifty  million  dollars'  worth  of 


234  Land  Credits 

bonds  to-day  and  none  to-morrow.  The  Government  would 
buy  not  to  keep  but  to  sell.  This  kind  of  bond-purchasing 
would  not  develop  confidence  in  farm-mortgage  bonds. 

(2)  Bond-pur cliasing  proposition  does  not  (a)  insure 
adequate  credit  or  (h)  a  loiv  rate  of  interest.  The  bond- 
purchasing  provision  in  the  Sub-committee  Bill,  if  adopted, 
would  not  insure  adequate  credit.  It  has  already  been 
pointed  out  that  it  would  not  be  mandatory  upon  the  Gov- 
ernment to  buy  any  of  these  bonds,  and  that  the  amount 
of  bonds  the  Government  would  buy  would  be  entirely  at 
the  discretion  of  the  Federal  Eeserve  Board.  There  would 
be  no  positive  assurance  of  any  purchases.  But  assuming 
that  the  Government  would  annually  buy  a  reasonable 
amount  of  these  bonds,  still  this  would  not  guarantee  ade- 
quate credit  for  agriculture.  The  only  way  to  insure  ade- 
quate credit  through  a  bond-purchasing  proposition  is  to 
make  this  provision  mandatory,  and  require  the  Govern- 
ment to  purchase  all  bonds  not  wanted  by  other  investors. 
This  would  be  equivalent  to  the  Government  undertaking 
to  loan  directly  to  the  farmers  all  the  money  needed.  To 
understand  clearly  what  will  be  the  effect  of  the  bond-pur- 
chasing proposition  on  the  amount  of  credit  extended  by  the 
banks,  it  must  be  borne  in  mind  that  the  safety  of  the 
farm-mortgage  bonds  is  the  one  thing  that  will  induce  in- 
vestors to  put  their  money  into  them.  The  public  will  not 
invest  in  long-time  farm-mortgage  bonds,  about  the  safety 
of  which  there  is  any  question  whatever.  The  purchase  of 
these  bonds  by  the  Government  does  not  add  anything  to 
their  safety.  The  fact  that  the  Government  purchases 
these  bonds  might  give  others  confidence  therein,  but  does 
not  make  them  any  more  secure.  If  the  Government  de- 
sires to  do  something  that  will  insure  ample  credit,  it  must 
adopt  some  plan  that  will  make  the  farm-mortgage  bonds 
an  absolutely  safe  investment.  This  will  bring  ample  credit 
to  the  farmers ;  this  will  induce  investors,  large  and  small, 
to  purchase  these  bonds.     Nothing  else  will.     It  is  idle  to 


Government  Aid  235 

talk  about  selling  two  or  three  billion  dollars'  worth  of 
farm-mortgage  bonds,  unless  their  safety  is  assured.  And 
it  would  be  wrong  for  the  Federal  government  to  allow 
them  to  be  issued  under  conditions  which  would  call  in 
question  their  safety.  The  farmers  and  their  friends  who 
are  trying  to  secure  legislation  in  their  interests,  should 
get  clearly  in  their  minds,  above  all  things  else,  that  the 
one  essential  thing  is  the  safety  of  the  bonds.  If  no  other 
way  can  be  devised,  the  Federal  government  should  guar- 
antee their  payment.  This  will  remove  all  doubt  about 
their  payment,  and  secure  ample  credit  for  agriculture. 
If,  however,  the  Federal  government  does  not  want  to 
directly  guarantee  the  payment  of  farm-mortgage  bonds, 
then,  instead  of  investing  its  funds  in  farm  mortgages,  in 
an  uncertain,  and  irregular  way,  it  should  appropriate  suffi- 
cient money  to  form  the  basis  of  a  guaranty  or  insurance 
fund,  which  in  itself  would  make  the  farm-mortgage  bonds 
secure,  and  thus  insure  their  sale  in  quantities  large  enough 
to  meet  the  demand  for  farm-mortgage  loans. 

(b)  The  purcJiase  of  farm-mortgage  bonds  will  have  no 
material  effect  in  reducing  the  rate  of  interest  on  farm 
mortgages.  In  determining  the  way  government  credit  or 
government  funds  shall  be  used  in  aid  of  agricultural  credit, 
the  main  objects  in  view  must  be  kept  constantly  in  mind. 
The  objects  of  such  aid,  as  has  been  repeatedly  stated,  are 
to  increase  the  amount  of  credit  and  guarantee  a  low  rate 
of  interest.  Obviously,  therefore,  government  funds  should 
be  used  in  a  manner  that  will  most  effectively  contribute 
to  these  two  ends.  In  another  chapter  the  question  of  in- 
terest has  been  fully  discussed.  It  has  been  shown  that  the 
rate  of  interest  will  be  affected  by  statutory  provisions,  by 
the  character  of  the  bond-issuing  institution,  whether  pub- 
lic or  private,  by  economical  administration,  by  the  num- 
ber of  bond-issuing  institutions,  their  capital  and  reserve 
funds,  by  uniformity  in  interest  rates,  by  absence  of  com- 
petition between  bond-issuing  institutions,  and  above  all  by 


236  Land  Credits 

absolute  security  in  farm-mortgage  bonds.  The  mere  fact 
that  the  Federal  government  buys  farm-mortgage  bonds 
in  no  way  adds  to  their  safety.  The  capital  of  the  bond- 
issuing  banks  is  not  increased  thereby.  The  administrative 
expense  would  not  be  reduced.  The  character  of  the  bond- 
issuing  institutions  would  not  be  changed.  It  would  not 
make  interest  rates  uniform  over  the  entire  country,  or 
prevent  bond-issuing  banks  from  competing  with  each  other 
in  the  sale  of  their  bonds.  Strange  to  say,  the  bond-pur- 
chasing proposition  would  tend  to  increase  interest  rates. 
By  purcliasing  farm-mortgage  bonds,  the  Government 
places  itself  in  the  same  position  as  private  purchasers. 
The  interest  of  the  bond-purchasers  and  the  farmers  are  not 
in  all  respects  identical.  The  investor  wants  the  bonds  to 
bear  as  high  a  rate  of  interest  as  possible,  because  the 
interest  on  the  bond  determines  the  annual  earning  power 
of  his  money.  But  the  bond  interest  rate  controls  the 
mortgage  interest  rate.  The  bond  can  not  bear  a  high  rate 
of  interest  unless  the  farmers  pay  a  high  rate  of  interest. 
To  an  extent,  there  is  a  conflict  of  interest  between  the 
farmers  who  borrow  and  all  w^ho  invest  in  their  securities. 
In  becoming  a  bond-purchaser,  the  Federal  government 
would  place  itself  in  a  position  adverse  to  the  farmers. 
Financially  the  Government  would  profit  by  a  high  interest 
rate  on  farm-mortgage  bonds,  which  would  mean  a  high 
interest  rate  on  mortgages.  The  only  ways  the  Govern- 
ment can  use  its  credit  or  its  funds  to  materially  affect  the 
rate  of  interest  is  to  guarantee  the  payment  of  the  farm- 
mortgage  bonds,  or  to  use  its  funds  in  some  system  of 
direct  loans,  or  in  providing  capital  or  reserve  funds  to 
secure  the  payment  of  the  farm-mortgage  bonds. 

(3)  The  hond-purchasing  proposition  is  not  supported 
by  the  experience  and  practice  of  other  nations.  In  decid- 
ing upon  the  best  plan  for  the  use  of  the  credit  or  funds 
of  the  national  Government  in  aid  of  agricultural  credit, 
the   experience   of   other  nations   should  be  given  great 


Government  Aid  237 

weight.  Ko  new  plan  should  be  tried  if  others  have  proven 
successful.  It  is  never  wise  to  try  an  experiment  in  a  vital 
matter.  In  great  undertakings,  when  immense  interests 
are  at  stake,  it  is  not  wise  to  take  too  many  chances.  If 
Congress  shall  decide  to  use  either  the  credit  or  the  funds  of 
the  Federal  government  to  promote  agricultural  credit,  it 
should  follow  the  example  set  by  other  nations,  and  adopt 
a  method  that  has  proven  safe  for  these  governments,  and 
successful  in  providing  farmers  with  proper  credit  facilities, 
at  reasonable  cost.  It  is  clearly  within  the  facts  to  say 
that  there  is  not  a  single  land-credit  system  in  the  world 
that  owes  its  success  to  the  purchase  of  farm  mortgage- 
bonds  by  the  Government  founding  it.  Tliis  is  a  matter 
of  such  supreme  importance  as  to  demand  a  careful  ex- 
amination of  the  precedents  of  other  nations. 

(a)  Germany.  All  students  of  European  rural  credit 
systems  recognize  that,  all  things  considered,  Germany  has 
provided  her  farmers  with  the  best  facilities  for  credit. 
She  has  led  all  other  nations  in  this  field.  Her  land-credit 
institutions  are  the  oldest.  She  has  been  liberal  in  the  use 
of  government  credit,  and  government  cash,  in  aiding  them. 
She  has  used  her  credit  and  cash  in  different  ways.  But 
neither  the  Imperial  government,  nor  the  provincial  gov- 
ernments have  purchased  farm-mortgage  bonds  as  a  means 
to  insure  the  success  of  any  of  her  numerous  land-credit 
institutions.  There  are  eight  different  kinds  of  land-credit 
institutions  in  Germany.  The  Landschaften,  the  state  and 
provincial  mortgage-credit  banks,  the  joint-stock  mortgage 
banks,  the  savings  banks,  credit  for  land  improvement, 
Prussian  aid  banks,  rent  charge  aid  banks,  and  insurance 
institutions.  Neither  the  Imperial  government  nor  the 
provincial  governments  have  used  their  funds  largely  to  aid 
the  Landschaften.  In  no  case  have  the  governments  aided 
the  Landschaften  by  purchasing  their  debentures.  The 
aid  extended  has  been  advancement  for  organization  pur- 
poses, and  contributions  to  their  capital  or  reserves.     There 


238  Land  Credits 

are  thirty-seven  joint-stock  mortgage  banks  in  Germany. 
These  are  strictly  private,  profit-sharing  institutions. 
They  have  an  enormous  business  which  is  largely  confined  to 
loans  on  town  and  city  property.  They  have  not  been  aided 
in  any  way  by  the  use  of  the  funds  of  the  Imperial  or 
provincial  governments.  There  are  sixteen  state,  provincial 
or  district  mortgage  banks.  These  are  all  public  institu- 
tions. The  state  or  provincial  governments  do  not  aid 
them  by  purchasing  their  bonds,  but  guarantee  the  payment 
of  their  bonds.  There  are  over  3000  savings  banks  in  the 
German  Empire,  exclusive  of  branches.  The  great  bulk 
of  these  are  public  institutions  founded  by  state,  provincial, 
and  local  governments.  They  loan  extensively  on  farm- 
land mortgages  and  some  of  them  issue  farm-mortgage 
bonds.  The  governments  do  not  purchase  these  bonds. 
They  do  guarantee  the  payment  of  their  liabilities.  Speak- 
ing of  the  savings  banks  of  Prussia,  numbering,  in  1911, 
1711,  Cahill  (S.  Doc.  17,  63rd  Congress,  page  76),  says: 
"  The  great  majority  of  savings  banks  are  communal, 
district  or  urban  and  are  public  institutions,  established, 
supervised  or  managed,  and  guaranteed  by  these  govern- 
ments." In  Prussia,  there  are  five  Land  Improvement 
banks.  These  are  public  institutions,  and  the  bonds  are 
guaranteed  by  the  states  or  provinces.  There  are  eleven 
Prussian  Provincial  Aid  banks.  These  are  public  insti- 
tutions and  the  bonds  are  secured  by  guaranty  of  the  prov- 
inces. There  are  seven  Pent  Charge  banks.  These  are 
government  institutions.  Eeferring  to  their  bonds,  Cahill 
(S.  Doc.  17,  63rd  Congress,  page  94),  says:  "These 
bonds  rank  as  government  securities."  There  are  thirty- 
one  public  insurance  institutions  which  make  loans 
for  agricultural  purposes.  They  issue  long-time  bonds. 
Being  governmental  institutions,  all  their  obligations  are 
secured  by  the  state.  These  comprise  all  the  land-credit  in- 
stitutions of  Germany.  All  these  concerns  are  public  in- 
stitutions, except  the  joint-stock  mortgage  banks,  and  only 


Government  Aid  239 

9  per  cent,  of  their  loans  are  made  upon  farms.  Hence, 
practically  ail  of  the  farm-credit  institutions  of  Germany 
are  public  institutions  with  their  bonds  secured  by  the  state, 
provincial  or  local  governments.  In  no  instance  has  the 
Imperial  government,  or  the  state,  provincial  or  local  gov- 
ernments undertaken  to  insure  the  success  of  any  of  their 
land-credit  institutions  by  the  purchase  of  their  bonds. 
When  funds  of  the  governments  have  been  used  it  has  been 
in  contribution  to  the  organization  expenses,  operating 
funds,  the  capital,  reserve  or  guaranty  funds.  Germany 
has,  however,  insured  the  success  of  her  farm-credit  insti- 
tutions by  seeing  to  it  that  the  bonds  or  debentures  of  these 
institutions  were  issued  under  conditions  and  circumstances 
which  made  them  a  perfect  type  of  security.  The  deben- 
tures of  the  old  Landschaften  were  made  secure  by  the  prin- 
ciple of  unlimited  liability.  Some  of  the  new  Landschaften 
have  abandoned  the  unlimited  liability  requirement  and 
make  their  debentures  secure  by  reserve,  guaranty  or  in- 
surance funds.  The  bonds  of  all  the  other  credit  insti- 
tutions in  Germany,  not  including  the  Joint-stock  mortgage 
banks,  established  generally  for  urban  loans,  are  issued 
under  the  guaranty  of  the  state,  provincial  or  district  gov- 
ernments. There  is  no  record  tliat  any  material  loss  has 
come  to  the  governments  by  reason  of  this  guaranty.  The 
bond-purchasing  proposition  has  no  support  from  the  ex- 
ample of  any  of  the  German  governments. 

(b)  France.  The  land-credit  system  of  France  is 
largely  centered  in  one  institution,  the  Credit  Foncier. 
The  statesmen,  economists  and  students  of  France  spent 
more  than  a  quarter  of  a  century  in  the  active  study  and 
discussion  of  various  farm-credit  propositions.  After  all 
this  discussion,  she  gave  the  Credit  Foncier  $2,000,000  in 
cash,  conferred  upon  it  valuable  privileges,  assumed  partial 
governmental  control,  and  placed  such  restrict  ions  and  limi- 
tations on  its  methods  of  business,  and  required  it  to  have 
capital  and  reserves  sufficient  to  insure  the  payment  of  its 


240  Land  Credits 

bonds.  The  French  government  in  establishing  this  great 
mortgage-credit  institution  did  not  resort  to  a  bond-pur- 
chasing proposition.  It  is  true,  that  in  passing  the  orig- 
inal law  relating  to  land-credit,  France  did  authorize  the 
state  or  central  government  to  buy  the  debentures  of  her 
land  banks.  But  after  a  number  of  banks  had  been  organ- 
ized under  this  law,  France  decided  to  change  her  sys- 
tem. The  Credit  Foncier  absorbed  the  other  land-credit 
banks.  So  far  as  known,  the  authority  of  the  government 
to  purchase  bonds  was  never  exercised  under  the  original 
law. 

(c)  Austria-Hungary.  In  Austria  there  are  provincial 
mortgage  institutions  in  all  the  crown  provinces  except  two 
and  these  are  all  governmental  institutions  and  the  bonds 
issued  by  them  are  guaranteed  by  the  provinces. 

The  chief  farm-mortgage  credit  institutions  of  Hungary 
are  the  Hungarian  Bodcn-Credit  Institute,  which  the  state 
endowed  with  $245,000,  the  Xational  Land  Credit  Institute 
for  small  land  owners,  which  the  state  also  gave  $245,000, 
and  the  N"ational  Federation  of  Hungarian  Land  Credit 
Institutions  which  was  endowed  by  the  state  with  $1,960,000 
in  cash,  and  also  with  $2,450,000  in  valuable  securities  as  a 
fund  to  guarantee  the  payment  of  its  debentures.  Neither 
Austria  nor  Hungary  has  invested  in  the  debentures  of  her 
land-credit  institutions. 

(d)  Russia.  The  emancipation  of  over  22,000,000  serfs 
in  Russia  led  to  the  establishment  of  the  Peasants'  Land 
Bank.  Eussia  endowed  it  with  an  annual  subsidy  of 
$2,575,000.  Through  this  bank  the  government  has  car- 
ried on  a  vast  business.  It  is  a  government  institution  and 
its  bonds  are  virtually  government  securities. 

(e)  Italy,  Switzerland,  DenmarTc  and  Sweden.  Italy, 
Switzerland,  Denmark  and  Sweden  have  developed  suc- 
cessful farm-credit  institutions,  None  of  these  govern- 
ments has  adopted  the  policy  of  purchasing  the  bonds  or 
debentures  of  these  institutions  as  a  means  to  insure  their 


Government  Aid  241 

success.  Switzerland  has  twenty-eight  land-credit  insti- 
tutions, owned  or  operated  by  the  state,  whose  debentures 
are,  of  course,  guaranteed  by  the  state.  The  Mortgage 
Bank  of  Berne  was  given  $1,400,000  as  a  part  of  its  capital 
by  the  Cantons.  Its  farm  loans  are  made  through  the  com- 
munes, which  guarantee  the  payment  of  the  loans.  The 
Canton  of  Vaud  purchased  11,000  shares  of  the  Mortgage 
Bank  of  Vaud.  The  total  shares  were  19,500.  The  Can- 
ton invested  in  these  shares  $110,000.  The  Canton  guar- 
anteed a  4  per  cent,  dividend  on  the  stock  of  the  bank.  So 
the  Canton  of  Geneva  through  its  communes  supplied  the 
foundation  capital  for  the  Land  Credit  Bank  of  Geneva. 
The  obligations  of  the  Mortgage  Bank  of  St.  Gall  are 
guaranteed  by  the  Canton. 

The  fourteen  land-credit  associations  of  Denmark  are 
patterned  after  the  German  Landschaften  and  the  govern- 
ment does  not  purchase  their  bonds  as  a  means  to  promote 
their  success.  Denmark  advanced  $5,360,000  without  in- 
terest to  found  the  Mortgage  Bank  of  the  Kingdom  of 
Demnark.  This  bank  is  designed  as  a  central  institution 
for  the  Landschaften.  It  buys  their  debentures.  Den- 
mark makes  annual  appropriations  out  of  the  treasury, 
amounting  in  1909  to  $1,730,000,  to  be  lent  to  small- 
holders. 

The  Swedish  General  Mortgage  Bank  was  endowed  at  its 
founding  with  $2,144,000,  and  in  1890  the  bank  was  given 
a  subsidy  of  $8,040,000  in  government  bonds.  This  is  a 
central  institution  to  aid  the  ten  local  landowners'  mort- 
gage associations  in  the  sale  of  their  debentures. 

(f)  Egypt,  Japan,  Philippine  Islands,  Australian  States. 
The  Agricultural  Bank  of  Egypt  is  controlled  by  the  state. 
The  National  Bank  of  Egypt,  closely  connected  with  the 
state,  owns  one-third  of  its  capital  stock.  A  3  per  cent, 
dividend  is  guaranteed  on  the  stock  by  the  government,  and 
when  necessary  to  sell  its  bonds  at  a  reasonable  rate  of  in- 
terest, the  government  guarantees  their  payment. 


242  Land  Credits 

Japan  guaranteed  a  5  per  cent,  dividend  for  ten  years 
on  the  stock  of  the  Kwango  Ginko^,  or  central  land-credit 
bank  of  Japan.  It  also  gave  a  subsidy  of  $4,980,000  to  the 
forty-six  local  or  district  land  banks,  called  the  Noko  Ginko. 

The  capital  of  the  Philippine  Agricultural  Bank,  to  the 
amount  of  $500,000,  was  contributed  by  the  Insular  gov- 
ernment. This  institution  is  controlled  and  operated  by 
the  government. 

South  Australia,  Western  Australia,  IsTew  South  Wales, 
Victoria,  Queensland  and  New  Zealand  through  state  land- 
credit  banks  or  direct  appropriations  make  loans  to  farmers, 

(g)  Mexico,  Argentina,  Chile,  Uruguay  and  Costa  Rica. 
Mexico  neither  guarantees  nor  purchases  the  bonds  of  her 
land  banks.  Un  Banco  Hipotecario  Nacional  is  the  chief 
land-credit  bank  of  Argentina,  and  its  notes  are  issued  un- 
der guaranty  of  the  government.  The  one  great  land  bank 
of  Chile  is  the  Chilean  State  Land  Mortgage  Bank.  It 
is  a  government  institution  and  its  securities  are  issued 
under  government  guaranty.  Uruguay  guarantees  the 
bonds  of  her  principal  land  bank,  the  Banco  Hipotecario, 
and  Costa  Eica  has  a  state  land-credit  bank.  It  may  be 
said  that  Chile  has  at  times  purchased  bonds  of  the  Chilean 
State  Land  Mortgage  Bank,  but  as  this  is  a  state  institu- 
tion, and  the  bonds  are  guaranteed  by  the  state,  it  is  evi- 
dent that  the  purchase  of  these  bonds  by  the  state  has  had 
no  material  influence  in  the  success  of  this  institution. 

This  brief  review  shows  that  no  government  has  ever 
adopted  the  policy  of  purchasing  the  bonds  or  debentures 
of  its  land-credit  institutions.  For  over  a  century,  the  best 
minds  of  Europe,  as  well  as  of  other  countries,  have  studied 
the  principles  of  land  credit.  Land-credit  institutions  have 
been  established  that  have  stood  every  test.  Systems  of 
land-mortgage  credit  have  been  founded  which  have  sur- 
vived business  depression,  hard  times,  commercial  cata- 
clysms, revolution,  and  war.  They  have  safely  passed 
through  every  crisis.     Governments  have  used  their  funds 


Government  Aid  243 

to  aid  in  their  organization,  supervision  and  control. 
They  have  frequently  subscribed  to  their  capital  stock, 
voted  them  gifts,  donations,  and  subsidies,  endowed  them 
with  large  sums  in  cash  and  bonds,  and  contributed  mil- 
lions of  dollars  to  their  reserve,  insurance  and  guaranty 
funds.  State  land  banks  have  been  created  and  operated 
by  governments.  Departments  and  bureaus  have  loaned 
funds  appropriated  from  the  public  treasury.  Communes, 
cantons,  administrative  districts,  provinces,  states,  king- 
doms, and  Imperial  governments  have  freely  given  their 
guaranty  for  the  payment  of  their  bonds  and  debentures. 
All  this  has  been  done  without  serious  loss  or  embarrass- 
ment to  any  government.  The  actual  losses  have  been  in- 
significant. The  credit  of  no  government  has  been  im- 
paired. The  taxpayers  have  not  been  burdened.  No  great 
abuses  have  developed.  Other  lines  of  business  have  not 
suffered.  Above  all,  the  methods  used  have  proved  suc- 
cessful. Investors  have  trusted  agriculture.  Credit  in 
abundance,  at  low  rates  of  interest,  has  been  extended  to 
farmers.  The  United  States  should  profit  from  the  expe- 
rience of  other  nations.  In  the  use  of  its  cash  or  credit,  in 
this  great  undertaking,  this  nation  should  select  methods 
that  have  been  tried  and  tested.  The  bond-purchasing 
proposition  is  new.  It  has  not  been  used  by  any  other  gov- 
ernment. Its  success  is  a  matter  of  conjecture.  No  one 
knows  what  it  would  cost.  No  one  can  tell  to  what  ex- 
tent it  would  furnish  credit  to  our  farmers.  But  it  has 
been  presented  in  good  faith.  It  has  the  endorsement  of 
the  Sub-committee  on  rural  credits.  This  gives  the  plan 
prestige.  Members  of  Congress  dislike  to  vote  against  the 
report  of  a  committee.  The  joint-committee  will  doubtless 
take  in  consideration  this  endorsement.  There  is  immi- 
nent danger  that  a  mistake  may  be  made.  The  principle 
of  "  government  aid  "  may  be  won,  and  the  substance  lost. 
The  situation  is  critical.  All  who  are  interested  should  do 
their  utmost  to  understand  this  great  proposition,  and  then 


244  .         Land  Credits 

contribute  all  in  their  power  to  its  correct  solution.  For 
this  proposition  involves  the  cash  and  credit  of  the  nation, 
the  growth  and  expansion  of  agriculture,  the  success  of  our 
land-credit  institutions,  and  the  prosperity  of  our  farmers. 

(4)  How  the  funds  or  the  credit  of  the  Government  may 
he  used  to  aid  farm-mortgage  credit.  Having  taken  the 
position  that  the  use  of  the  funds  of  the  Federal  govern- 
ment in  the  purchase  of  the  bonds  would  not  insure  the  suc- 
cess of  our  land-credit  institutions  and  was  not  wise  from 
the  view-point  of  the  Government,  it  now  remains  to  deter- 
mine in  what  way  or  ways  the  cash  or  the  credit  of  the 
national  Government  may  be  most  wisely  used. 

(a)  If  private  Joint-stock  banks  shall  be  created  to  oper- 
ate our  land-credit  system,  the  Federal  government  must  use 
its  funds  to  whatever  extent  may  be  necessary  to  provide 
these  banks  with  proper  capital.  This  principle  was  recog- 
nized in  the  Federal  Eeserve  Act.  The  Government  hav- 
ing determined  the  amount  of  capital  the  Federal  Eeserve 
Banks  should  have.  Congress  authorized  the  Secretary  of 
the  Treasury  to  subscribe  for  the  United  States  any  balance 
the  national  banks  did  not  subscribe.  The  Sub-committee 
Bill  and  the  Senate  Committee  Bill  direct  the  Secretary  of 
the  Treasury  to  subscribe  any  balance  which  private  capital 
may  not  subscribe.  The  national  banks  furnished  the  re- 
quired amount  of  capital.  The  Secretary  of  the  Treasury 
did  not,  therefore,  exercise  the  authority  given  him.  Un- 
der the  Sub-committee  Bill  and  the  Senate  Committee  Bill 
the  minimum  capital  stock  of  each  of  the  twelve  district 
banks  must  be  only  $500,000.  Should  either  of  these  bills 
become  a  law  it  is  not  probable  the  Government  would  be 
called  upon  to  use  its  funds  to  purchase  stock  in  these 
banks.  It  has  been  shown  elsewhere  that  the  twelve  dis- 
trict banks  with  a  total  capital  stock  of  only  $6,000,000 
would  not  be  sufficient  to  insure  adequate  credit.  If  the 
twelve  district-bank  plan  should  be  adopted  the  capital  of 
each  of  these  banks  should  be  not  less  than  $5,000,000  and 


Government  Aid  24^ 

the  Federal  funds  should  be  used,  if  necessary,  to  secure 
this  capital. 

(b)  The  Government  should  use  its  credit  or  its  cash,  to 
whatever  extent  may  be  necessary,  to  insure  the  payment  of 
the  bonds  issued  by  our  land-credit  banks  whatever  may 
be  their  character. 

Three  principal  methods  have  been  used  to  make  farm- 
mortgage  bonds  or  debentures  absolutely  secure.  These 
are: 

First.  The  method  adopted  by  the  old  Landschaften, 
viz. :  the  unlimited  joint  and  several  liability  of  borrowers. 

Second.  The  guaranty  of  a  local,  provincial,  state  or 
Imperial  government. 

Third.  Through  the  creation  or  accumulation  of  a  spe- 
cial fund,  called  a  reserve,  guaranty  or  insurance  fund,  suffi- 
cient to  meet  all  possible  losses. 

Any  of  these  methods  may  be  used.  One  of  them  must 
be  used,  if  our  land-credit  system  shall  be  successful. 

First.  Unlimited  Joint  and  Several  Liahility.  The 
bonds  or  debentures  of  land-credit  institutions  may  be 
made  secure  and  safe  by  making  all  borrowers  jointly  and 
severally  liable  for  each  other.  Experience  has  demon- 
strated that  borrowers  may  safely  assume  this  liability.  For 
more  than  a  century  this  method  has  been  tried.  It  has 
proven  successful.  Borrowers  have  never  lost  thereby.  In 
law,  the  liability  is  unlimited.  In  practice,  it  costs  borrow- 
ers nothing.  The  reason  is  this :  All  borrowers  are  re- 
quired annually  or  semi-annually  to  contribute,  in  addition 
to  payments  of  interest,  amortization  fees  and  administra- 
tive charges,  a  small  amount  which  is  set  aside  as  a  re- 
serve, guaranty,  or  insurance  fund.  The  actual  losses  on 
farm  loans  have  been  small  and  land-credit  associations 
have  had  no  trouble  in  accumulating  ample  reserve  funds 
to  meet  all  losses.  It  is  the  general  belief  that  the  farmers 
of  the  United  States  would  hesitate  to  borrow  were  they  re- 
quired to  assume  any  liability  for  defaults  of  others.     This 


246  Land  Credits 

feature  will  probably  not  be  incorporated  in  our  land-credit 
system.  Nevertheless,  farmers  could  well  afford  to  accept 
this  method  of  making  all  their  securities  perfectly  safe, 
rather  than  have  them  placed  on  the  market,  under  condi- 
tions which  would  leave  any  doubt  whatever  of  their  pay- 
ment. 

Second.  Government  Gtiaranty  of  Farm-mortgage 
Bonds.  It  has  been  shown  elsewhere  that  it  has  been  the 
common  practice  for  communal,  provincial,  state,  and  na- 
tional governments  to  guarantee  the  payment  of  the  prin- 
cipal and  interest  on  farm-mortgage  bonds  or  debentures. 
This  guaranty  has  been  extended  only  to  public  or  semi- 
public  institutions.  Generally  speaking,  private  joint- 
stock  land  banks,  organized  for  profit,  are  not  in  a  position 
to  ask  this  kind  of  government  aid.  However,  if  the 
United  States  shall  decide  in  favor  of  only  private  institu- 
tions as  the  instruments  to  operate  its  land-credit  system, 
government  guaranty  sliould  not  be  discarded  on  account 
of  this  fact.  The  necessity  for  government  guaranty  exists 
regardless  of  the  kind  of  institution  created.  Indeed,  pub- 
lie  or  semi -public  institutions  need  the  credit  of  the  Gov- 
ernment behind  them  less  than  private  institutions.  In- 
vestors naturally  have  more  confidence  in  public  or  semi- 
public  institutions.  Further,  without  any  legal  guaranty, 
the  public  would  regard  the  Government  as  responsible  for 
the  securities  issued  by  institutions  owned  in  whole  or  in 
part,  or  controlled  or  managed  partially  or  entirely  by  pub- 
lic officers,  or  bank  officials  appointed  by  the  Government. 
It  has  been  said  that  the  farmers  of  the  United  States 
would  not  readily  accept  the  unlimited  liability  feature  of 
some  of  the  European  rural  credit  institutions.  The  Gov- 
ernment is  just  like  the  farmers.  As  one  farmer  does  not 
like  to  go  security  for  another,  so  the  Federal  government 
does  not  like  to  go  on  the  bond  of  all  its  farmers.  But 
as  has  been  pointed  out,  the  unlimited  liability  feature  of 
European  land-credit  institutions  has  cost  borrowers  prac- 


Government  Aid  247 

tically  nothing.  Likewise,  government  guaranty  has  cost 
the  governments  little.  The  explanation  is  this :  in  both 
cases  ample  provision  is  made  to  meet  all  losses  through  a 
special  fund,  to  which  all  borrowers  are  required  to  con- 
tribute. As  a  matter  of  fact,  in  every  system  of  land  credit, 
every  borrower  pays  his  due  proportion  of  losses  incurred 
through  the  default  of  all  others.  He  must  do  this  by 
special  payments  made  regularly  and  set  aside  for  this  pur- 
pose, or  he  must  do  it  through  higher  interest  rates,  com- 
missions or  some  other  form  of  charges.  The  loan  institu- 
tion, whether  private  or  public,  an  individual,  co-partuer- 
ship,  association,  or  corporation  does  not  pay  the  losses. 
The  lender  assumes  there  will  be  losses.  On  this  account, 
in  some  form,  he  charges  every  borrower  a  little  more  tban 
he  otherwise  would.  Accordingly  an  institution  that  makes 
loans  upon  doubtful  security,  upon  which  losses  are  fre- 
quent, charges  all  borrowers  a  high  rate  of  interest.  Those 
who  are  good  pay  the  defaults  of  others.  Ordinary  com- 
mercial banks  expect  certain  annual  losses  from  unpaid 
loans.  These  losses  are  made  good  by  charging  those  who 
do  pay  a  higher  rate  of  interest.  To  some  extent,  this 
accounts  for  the  fact  that  banks  in  old  settled  communi- 
ties loan  at  a  lower  rate  of  interest  than  banks  in  new  coun- 
tries. On  an  average,  the  banks  in  old  settled  countries 
loan  on  better  security,  and  their  losses  from  bad  loans  are 
less.  But  suppose  the  Government  would  make  loans  di- 
rect to  farmers,  or  guarantee  the  payment  of  farm-mortgage 
bonds,  and  pay  all  losses  out  of  the  national  treasury, 
without  requiring  borrowers  to  contribute  annually  to  the 
reserve  fund.  The  Government  must  secure  its  funds 
through  some  form  of  taxation,  and  the  farmers  constitut- 
ing a  large  percentage  of  our  population  would  pay  their 
share  of  the  tax.  In  the  end,  therefore,  fix  it  as  we  may, 
the  system  must  be  self-supporting.  Money  can  not  be  ob- 
tained without  payment  to  investors  of  reasonable  interest, 
the  administrative  expenses  must  be  met,  and  all  losses 


248  Land  Credits 

must  be  made  good.  Every  borrower  must  pay  his  proper 
share  to  sustain  the  system.  It  is  just  as  essential  and  just 
as  legitimate,  that  every  borrower  pays  his  share  of  losses 
as  it  is  that  he  pays  his  share  of  administrative  expenses,  or 
the  principal  of  his  debt. 

The  losses  of  farm-mortgage  credit  institutions,  organ- 
ized and  supervised  by  governmental  authorit}^,  have  been 
insignificant.  In  the  first  place,  those  institutions  are  or- 
ganized under  laws,  which  restrict,  limit  and  regulate  them. 
They  are  supervised  by  governmental  authority.  Public  or 
semi-public  institutions  are  partially  controlled  by  govern- 
ment officers.  Safeguards  of  every  kind  are  thrown  around 
them.  Their  books  and  their  business  methods  are  subject 
to  rigid  inspection.  Precautions  of  every  kind  are  taken. 
Finally  every  loan  is  secured  generally  by  a  farm  worth 
double  the  amount  of  the  loan,  as  appraised  by  the  offi- 
cers or  agents  of  the  loan  institution.  Though  there  is 
some  danger  of  depreciation,  the  value  of  farms  fluctuate 
less  than  that  of  any  other  kind  or  character  of  property. 
Over  appraisement  is  possible,  but  unless  fraud  is  prac- 
ticed, it  would  be  rare,  indeed,  that  a  farm  would  be  ap- 
praised at  more  than  double  its  value.  Besides,  generally 
speaking,  farm  lands  of  every  class  and  in  every  State,  will 
continue  to  grow  in  value.  This  must  be  the  necessary  re- 
sult of  growth  in  our  population,  and  of  expansion  in  our 
industrial  and  commercial  forces.  It  must  also  be  remem- 
bered that  under  modern  systems  of  organized  land-credit, 
the  principal  is  paid  by  annual  or  semi-annual  payments. 
Every  year  the  principal  debt  grows  less.  This  system 
largely  offsets  any  danger  of  losses  from  over  appraisement 
or  from  any  shrinkage  in  the  value  of  the  mortgaged  prop- 
erty. "WTiy  all  this  discussion?  It  is  to  enable  us  to  get  a 
correct  conception  of  what  risk  the  Federal  government 
would  take  in  becoming  guarantor  for  the  payment  of  the 
farm-mortgage  bonds  to  be  issued  by  our  land-credit  in- 
stitutions. 


Government  Aid  249 

Off  hand,  the  proposition  for  the  National  Government 
to  assume  the  guaranty  of  one,  two  or  three  billions  of 
dollars'  worth  of  farm  mortgage-bonds,  seems  exceedingly 
dangerous.  After  one  has  studied  the  history  and  expe- 
rience of  other  governments  in  making  such  guarantees, 
after  one  fully  comprehends  the  methods  used  to  reduce 
losses  to  the  lowest  limit,  and  the  ease  with  which  land- 
credit  institutions  provide  a  fund  sufficient  to  meet  all 
losses,  he  will  recognize  that  the  monetary  liability  as- 
sumed would  be  comparatively  insignificant.  It  is  not  a 
question  of  possibility  of  financial  loss.  It  is  all  a  matter 
of  policy.  Would  government  guaranty  of  farm-mortgage 
bonds  lead  it  outside  of  the  realm  of  its  proper,  wise,  and 
legitimate  functions?  In  conclusion,  on  this  topic  it  may 
be  said  that  by  no  other  method  can  the  Federal  govern- 
ment insure  for  the  farmers  adequate  credit  at  a  low  rate 
of  interest,  with  so  small  expenditure  of  money  and  at  such 
little  risk. 

Third.  Bonds  secured  through  Reserve,  Guaranty,  or 
Insurance  Funds.  The  bonds  or  debentures  of  land-credit 
institutions  may  be  made  safe  through  the  accumulation  of 
a  special  fund,  commonly  called  a  reserve,  guaranty  or  in- 
surance fund.  All  borrowers  are  required  to  contribute  to 
this  fund.  Sometimes  a  certain  amount  is  taken  out  of 
each  loan  when  it  is  made,  and  invested  in  some  safe  in- 
terest-bearing security,  or  loaned  upon  gilt-edged  security. 
In  other  cases,  borrowers  are  required  at  all  interest  pay- 
ments, to  pay  a  small  fraction  of  1  per  cent,  on  the  amount 
of  their  loans.  In  some  institutions  when  the  guaranty 
fund  equals  a  certain  percentage  of  the  outstanding  bonds, 
no  further  contribution  thereto  is  required.  The  amount 
of  the  reserve  fund  varies  in  diiferent  institutions  accord- 
ing to  the  requirements  under  various  laws.  In  percentage, 
the  reserve,  guaranty  or  insurance  fund  ranges  from  5  to 
10  per  cent,  of  the  outstanding  bonds.  The  accumulation 
of  a  reserve  fund  is  compulsory,  and  is  required  by  all  in- 
stitutions, whether  under  government  guaranty  or  not. 


250  Land  Credits 

This  subject  will  be  further  considered  under  the  follow- 
ing heads : 

(a)  National  Appropriations  to  the  Eeserve  Fund. 

(b)  Management  of  Eeserve  Fund. 

(e)  Eeserve  Fund  should  be  held  in  Common. 

(a)  National  Appropriations  to  the  Reserve  Fund.  If 
for  any  reason  Congress  shall  finally  decide  against  the  pol- 
icy of  government  guaranty  of  farm-mortgage  bonds,  then 
the  next  best  way  to  make  farm-mortgage  bonds  absolutely 
secure  is  for  the  Federal  government  to  make  a  liberal  ap- 
propriation to  the  reserve  fund  of  our  land-credit  institu- 
tions. Even  if  the  I'ederal  government  should  undertake 
the  guaranty  proposition,  it  would  still  be  wise  to  make  a 
special  appropriation  to  the  reserve  fund  to  be  safely  in- 
vested, and  thus  accumulate  a  fund  amply  sufficient  to  meet 
any  liability  that  might  arise  under  its  guaranty.  If  our 
farm-mortgage  bonds  do  not  have  the  guaranty  of  the  Gov- 
ernment, the  reserve  fund  must  be  so  large  as  to  preclude 
all  questions  of  the  safety  of  farm-mortgage  bonds.  The 
reserve  fund  should  be  increased  from  year  to  year  until  it 
amounts  to  at  least  5  per  cent,  of  the  outstanding  bonds. 
"When  the  fund  reaches  the  required  amount,  contributions 
to  this  fund  should  cease  from  those  who  have  prior  thereto 
paid  into  the  fund.  And  as  new  funds  come  in  from  new 
borrowers  all  unnecessary  reserve  funds  should  be  returned 
to  contributors,  or  credited  on  their  mortgages,  giving 
preference  in  the  order  in  which  they  became  borrowers. 

The  Federal  government  should  provide  one-half  of  the 
guaranty  fund.  The  other  half  should  be  contributed  by 
borrowers.  The  appropriation  may  be  by  a  lump  sum  at 
the  inception  of  our  institutions  or  an  annual  and  continu- 
ing appropriation  might  be  made  through  a  certain  number 
of  succeeding  years.  If  it  be  decided  that  the  reserve  fund 
shall  within,  say  ten  years,  amount  to  5  per  cent,  of  the 
outstanding  bonds,  the  amount  of  the  annual  appropriation 
should  be  large  enough  to  provide  the  necessary  amount. 


Government  Aid  251 

Of  course,  there  can  be  no  important  losses  paid  until  the 
time  comes  to  redeem  the  iirst  series  of  bonds  issued. 
These  bonds  are  expected  to  run  at  least  thirty-five  years. 
In  the  meantime,  practically  the  only  losses  to  be  paid  out 
of  the  reserve  fund  would  be  to  meet  defaults  in  interest 
payments.  It  must  be  borne  in  mind,  that  the  reserve 
fund  will  be  invested,  and  drawing  compound  interest.  It 
will  thus  add  to  itself  rapidly.  It  does  not  seem  wise  that 
borrowers  should  contribute  their  full  share  to  the  reserve 
fund  at  the  time  of  securing  a  loan.  If  one-fifth  of  1  per 
cent,  shall  be  paid  annually  by  each  borrower  at  the  end 
of  25  years  he  will  have  contributed  5  per  cent,  of  the 
amount  of  his  loan  to  the  reserve  fund.  This  would  insure 
that  the  borrower  at  the  end  of  twenty-five  years  would 
have  a  fund  equal  to  5  per  cent,  of  the  outstanding  loan. 
In  the  above  calculation,  no  consideration  is  given  to  the 
fact  that  reserve  funds  would  be  added  to  annually  by 
the  interest  thereon.  Furthermore,  every  borrower  will  pay 
off  a  part  of  his  loan  every  year.  Every  year  an  amount  of 
bonds  will  be  redeemed  equal  to  the  total  annual  amortiza- 
tion payments.  It  is  plain  that  if  each  borrower  is  reduc- 
ing his  debt  annually  by  from  1/4  to  1  per  cent,  and  is  pay- 
ing one-fifth  of  1  per  cent,  on  the  face  of  his  mortgage  to 
the  reserve  fund,  it  will  require  much  less  than  twenty-five 
years  to  accumulate  a  5  per  cent,  reserve  fund. 

(b)  Management  of  Reserve  Fund.  The  land-credit  in- 
stitutions of  Europe  generally  allow  each  institution  to  re- 
tain the  management,  control,  and  custody  of  its  reserve 
fund.  An  improvement  might  be  made  on  this  system,  by 
requiring  the  reserve  funds  to  be  placed  in  the  control  of 
the  government.  Borrowers  are  required  to  contribute  to 
this  fund  as  a  guaranty  against  (1)  their  own  defaults, 
(3)  against  the  mistakes,  bad  management,  or  fraud,  or 
corruption  of  the  owners  or  managers  of  the  institution, 
and  (3)  as  against  events  beyond  the  control  of  either  bor- 
rowers or  bankers.     The  fund  is  created  to  protect  invest- 


2^2  Land  Credits 

ors  against  loss.  The  fund  belongs  morally  at  least  to  in- 
vestors. The  fund  is  to  secure  the  bonds  or  debentures. 
Bondholders  have  a  lien  on  this  fund  superior  to  the  claims 
of  other  classes  of  creditors.  It  is  a  sacred  fund,  and  every 
precaution  should  be  exercised  to  keep  it  inviolate.  Bond- 
holders will  suffer  as  often  from  the  mistakes  and  misman- 
agement of  the  managers  of  land-credit  institutions  as  they 
will  from  loss  in  payments  by  farmers.  Why  then  should 
this  fund  be  left  in  the  custody  of  the  land  banks  — 
when  one  of  the  objects  of  creating  the  fund  is  to  provide 
against  the  mistakes  and  in  some  cases  the  wrongful  acts 
of  their  officers  or  managers?  To  leave  this  fund  in  the 
custody  and  control  of  the  banks  also  diverts  it  from  its 
true  purpose  and  design.  Especially  is  this  true  in  private, 
profit-sharing  land-credit  institutions.  Because  in  all 
joint-stock  profit-sharing  institutions  the  reserve  fund  adds 
to  the  value  of  the  stock  held  by  shareholders.  In  other 
words,  it  is  used  for  speculative  purposes.  This  is  wholly 
at  variance  with  the  true  purpose  of  this  fund.  Borrowers 
pay  to  the  reserve  fund  —  as  an  insurance  against  loss  — 
which  may  be  chargeable  to  them,  to  the  bank,  or  to  events 
for  which  no  one  in  particular  is  responsible.  To  utilize 
this  fund  for  any  other  purpose,  is,  in  a  sense,  to  take 
money  from  the  farmers  under  false  pretenses.  There  is 
only  one  way  to  make  sure  that  this  fund  shall  not  be  di- 
verted from  its  legitimate  purpose  and  that  is  to  take  it 
out  of  the  control  of  the  land-credit  institutions  and  place 
it  in  the  hands  of  the  Government  or  in  the  control  of  some 
duly  authorized  agent,  designated,  approved  or  appointed 
by  the  Government.  One  way  would  be  for  the  Govern- 
ment to  designate  some  bank  or  trust  company  as  the  legal 
depository  for  this  fund  for  each  land  bank,  requiring  such 
depository  to  furnish  ample  security  therefor. 

That  the  Government  or  some  fiduciary  agent  should 
have  the  custody  of  the  reserve,  insurance  or  guaranty  fund, 
is  supported  by  the  fact  that  land  banks  are  not  allowed  to 


Government  Aid  253 

have  the  custody  of  the  farm  mortgages  on  which  the  bonds 
are  issued.  These  mortgages  are  the  primary  security  for 
the  payment  of  the  bonds.  To  insure  investors  against  loss 
from  the  wrongful  acts  of  land  banks  and  to  give  confi- 
dence to  investors,  land  banks  are  usually  required  to  de- 
liver the  mortgages  upon  which  bonds  are  issued  into  the 
possession  of  a  fiduciary  agent  as  the  representative  of  the 
bondholders.  If  the  farm  mortgages  should  be  taken  from 
the  custody  of  the  land  banks,  so  should  the  guaranty  fund. 
The  mortgages,  it  is  true,  are  the  chief  security  behind  the 
bonds.  However,  mortgagors,  except  when  unlimited  lia- 
bility is  required,  are  only  required  to  pay  their  own  notes. 
Assuming,  therefore,  that  some  mortgagors  will  not  pay 
their  loans  in  full,  the  only  way  to  meet  these  losses  is  from 
the  reserve  or  insurance  fund.  The  reserve  fund  is  what 
prevents  failures,  and  bankruptcy  of  land-credit  institu- 
tions. It  is  the  one  fund  that  meets  losses.  It  belongs  to 
investors  as  much  as  the  mortgages  upon  which  bonds  are 
issued.  If,  therefore,  it  is  wise  to  require  land-credit  in- 
stitutions to  surrender  the  custody  of  the  mortgages  upon 
which  they  issue  bonds,  they  should  also  relinquish  control 
of  the  reserve  fund.  While  the  reserve,  insurance  or  guar- 
anty fund  is  not  the  principal  security  for  the  bonds,  it  is 
a  supplemental  security,  which  meets  all  losses,  and  is  the 
only  fund  especially  set  apart  for  that  purpose.  To  take 
it  out  of  the  control  of  the  land  banks,  would  give  greater 
protection  to  investors,  add  to  the  safety  of  land  banks,  and 
instill  larger  confidence  in  our  land-credit  institutions. 

(c)  Reserve  Fund  Held  in  Common.  Whatever  may  be 
the  character  of  our  land-credit  institutions,  the  reserve 
fund  should  be  held  in  common.  Whatever  other  diversity 
there  may  be,  there  should  be  centralization,  unity  and  com- 
mon ownership  in  the  reserve,  guaranty  or  insurance  fund. 
To  this  fund  every  borrower  should  contribute  a  like  per- 
centage on  his  loan,  and  the  land-credit  institutions  should 
be  required  to  pass  these  funds  on  to  the  proper  custodian. 


254  Land  Credits 

If  Congress  shall  make  the  mistake  of  creating  a  multiplic- 
ity of  bond-issuing  land  banks,  then  the  only  hope  for  uni- 
formity in  interest,  and  for  equality  in  land-credit  facilities 
is  to  tie  these  institutions  together  with  a  common  reserve 
fund  large  enough  to  make  all  their  securities  absolutely 
as  good  as  the  bonds  issued  by  the  Federal  government. 
This  proposition  is  new  in  land-credit  legislation.  So  far 
as  the  writer  knows  it  has  never  been  followed  by  any  na- 
tion. Neither  to  his  knowledge  has  it  been  proposed  in  any 
bill  heretofore  introduced  in  Congress.  The  Sub-commit- 
tee  Bill  and  the  Senate  Committee  Bill  do,  however,  con- 
tain a  provision  akin  to  it.  This  is  the  provision  which 
requires  the  twelve  bond-issuing  district  banks  to  be  ulti- 
mately liable  for  the  payment  of  the  bonds  issued  by  any 
or  all  of  the  other  banks.  And  this  is  one  of  the  wisest 
provisions  found  in  these  two  bills.  But  the  Senate  Bill 
authorizes  the  establishment  of  any  number  of  bond-issuing 
banks,  independent  of  the  twelve  district  banks.  The 
twelve  district  banks  would  in  no  way  be  responsible  for 
the  obligations  of  the  independent  banks.  Neither  would 
the  independent  banks  be  responsible  for  each  other's  debts. 
A  common  reserve  fund  would  also  be  similar  to  the  prin- 
ciple of  guaranty  of  bank  deposits,  already  adopted  in  some 
of  the  States.  Every  commercial  bank,  whether  State  or 
national,  is  expected  to  maintain  a  reserve  and  accumu- 
late a  surplus.  A  bank's  capital,  reserve  and  surplus  are 
supposed  to  protect  depositors.  Generally  they  will.  But 
banks  do  fail.  Depositors  lose  heavily.  Even  where  losses 
are  light,  the  delay  means  ruin  to  many  depositors.  To 
provide  against  a  catastrophe  to  a  community  and  to  pro- 
tect individual  depositors  from  irreparable  loss,  States  have 
required  banks  to  make  contributions  to  a  guaranty  fund. 
If  the  Federal  government  shall  through  legislation  estab- 
lish a  national  system  of  land  credit,  millions  of  our  citi- 
zens will  hold  the  bonds  of  these  institutions.  Hundreds 
of  millions  of  dollars'  worth  of  these  bonds  will  be  in  cir- 


Government  Aid  255 

dilation.     Investors  are  entitled  to  protection.     A  common 
reserve  fund  will  afford  this  protection.     Assuming  that  oc- 
casionally a  land-credit  bank  might  fail  —  it  is  belter  to 
distribute  the  loss  among  all  our  land-credit  institutions. 
Losses  will  come  only  after  the  Government  has  taken  every 
precaution  and  exercised  the  highest  diligence  to  prevent 
them.     But  when  losses  come,  the  burden  then  should  be 
distributed  over  the  largest  possible  area,  and  among  the 
largest  number  of  persons.     All  our  land-credit  banks  must 
be  linked  together  by  a  common  reserve  or  guaranty  fund. 
All  mortgagors  must  contribute  to  this  fund.     Througli  it 
they  will  be  united.     Though  divided  by  obligations  to  dif- 
ferent institutions,  they  will  be  united  through  a  fund  that 
will  give  them  all  credit,  on  practically  equal  terms.     The 
reserve  will  not  be  the  property  of  the  land  banks.     It  will 
belong  to  those  whose  earnings  are  united  in  its  making. 
And  the  Federal  government  must  contribute  a  just  share 
to  this  fund.     If  the  Government  shall  refuse  to  guarantee 
the  bonds  issued  by  all  our  land  banks,  it  can  well  aflord 
to  aid  the  farmers  in  building  up  a  guaranty  fund  large 
enough  to  insure  the  safety  of  all  our  land-credit  institu- 
tions.    Thus  the  common  reserve  fund  will  unite  our  farm- 
ers in  a  common  undertaking  for  the  benefit  of  all ;  it  will 
bind  our  farmers  more  closely  to  each  other;  and  the  par- 
ticipation by  the  Federal  government  in  contributions  to 
this  fund  will  bind  our  farmers  more  closely  to  the  Federal 
Union,  strengthen  their  love  and  appreciation  therefor  and 
enlarge  their  admiration  for  the  principles  of  free  govern- 
ment. 


APPENDIX 
APPENDIX   "A" 


LIBKAEY    OF    CONGRESS 
WASHINGTON 


April  9,  1915. 
My  dear  Mr.  Morgan: 

The  enclosed  legal  brief  *  has  been  prepared  in  our  Legisla- 
tive Reference  Division  in  response  to  your  verbal  request  of 
March  17. 

Very  truly  yours, 

HERBERT  PUTNAM, 

Librarian. 

( 1  enclosure) 


CONSTITUTIONALITY     OF     EXEMPTION     OF     STOCK     IN 

RURAL    LAND    BANKS    AND    OF    FARM    MORTGAGES 

FROM  TAXATION,   IN  PROPOSED  LEGISLATION 

REGARDING   RURAL   CREDITS. 

By  H.  W.  Edgerton,  Research  Assistant, 
Legislative   Reference   Division, 
Library  of  Congress. 

NOTE 

The  courts  seem  never  to  have  had  occasion  to  pass  directly 
upon  the  constitutionality  of  so  wide  an  exemption  from   State 

*  Constitutionality  of  exemption  of  stock  in  rural  land  banks 
and  of  farm  mortgages  from  taxation,  in  proposed  legislation  re- 
garding rural  credits. 
Hon.  Dick  T.  Morgan, 

Room   490, 

House  Office  Building. 

257 


258 


Land  Credits 


taxation,  bv  Federal  authority,  as  is  here  contemplated.  The 
decisions  on  related  points  are  well  calculated  to  lead  in  differ- 
ent minds  to  different  conclusions  as  to  the  validity  of  the  ex- 
emptions. Principles,  it  would  seem,  must  therefore  be  largely 
relied  on. 

In  the  first  part  of  the  following  discussion,  certain  principles 
which  bear  more  or  less  directly  upon  the  question  are  presented, 
supported  by  the  citation  of  authorities.  In  the  second  and 
third  parts  some  of  the  points  which  might  be  urged  in  arguing 
for  or  against  the  constitutionality  of  the  exemptions  are  sug- 
gested. 

The  eases  cited  herein  may  be  found  at  length  in: 

Thayer,    Cases   on   constitutional    law.     v.    2. 

Cooley,  Constitutional  limit-ations.     6th  ed. 

Watson,   The  constitution. 

Willoughby,  The  constitution. 

Gray,  Limitations  on  taxing  power  and  public  indebtedness, 
and  other  treatises  on  constitutional  law. 

PRIXCIPLES   AXD    AUTHORITIES 

PABT   ONE 

As  an  example  of  the  proposed  exemptions  the  exemption 
provisions  contained  in  Senate  5542,  Sixty-third  Congress,  Third 
Session,  as  reported  to  the  Senate  from  the  Committee  on  Bank- 
ing and  Currency,  are  given  below.  This  bill  provides  in  Sec- 
tion 29: 

"  That  every  Federal  land  bank  and  every  farm  loan  associa- 
tion, including  the  capital  stock  and  reserve  or  surplus  therein, 
and  the  income  derived  therefrom,  shall  be  exempt  from  Federal, 
State,  and  local  taxation,  except  taxes  upon  real  estate  held, 
purchased,  or  taken  by  the  said  bank  under  the  provisions  of 
Sections  seven  and  fiiteen  of  this  Act.  First  mortgages  exe- 
cuted  to  farm  loan  associations  or  to  Federal  land  banks  vmder 
the  provisions  of  this  Act,  and  eligible  as  secnrity  for  the  issue 
of  farm  loan  bonds  shall  be  deemed  and  held  to  be  instrumentali- 
ties of  the  Government  of  the  United  States,  and  as  such  they 
and  the  income  derived  therefrom  shall  be  exempt  from  Federal, 
State,  and  local  taxation."' 

"  Farm  loan  bonds  issued  under  the  provisions  of  this  Act 
and  the  income  derived  therefrom  shall  be  exempt  from  Federal, 
State,  and  local  taxation,  and  such  bonds  shall  be  a  lawful  in- 
vestment for  all  fiduciarv  and  trust  fvmds." 


Appendix  259 

I.  Xeither  Congress  nor  a  State  legislature  is  forbidden  by 
the  Federal  Coustitutiou  to  make  volimtarv  exemptions  from 
the  operation  of  its  own  tax  laws.  Congress  mav  therefore  re- 
frain, and,  so  far  as  the  Federal  Constitution  is  concerned,  so 
may  St-ate  legislatures,  from  taxing  the  stocks  and  mortgages  in 
question.  In  particular  the  Fourteenth  Amendment  is  not  an 
obstacle  to  sucli  exemptions. 

"  The  oft-repeated  phrase,  tiiat  the  Fourteenth  Amendment 
was  not  designed  to  interfere  with  the  tax  systems  of  the  States, 
is  an  accurate  index  of  the  value  of  that  amendment  as  a  re- 
straint on  tiie  power  of  exemption.  Of  course,  if  a  case  of  ex- 
emption amoimting  to  flagrant  confiscation  should  arise  relief 
might  be  had  imder  the  clause  forbidding  a  denial  of  the  equal 
protection  of  the  laws;  and  in  this  respect,  perhaps,  the  Four- 
teenth Amendment  may  be  regarded  as  being  an  express  embodi- 
ment of  the  vague  limitation  tJie  possible  existenc-e  of  which  has 
been  suggested.  But  mere  inequality,  will  not  of  itself  be  suf- 
ficient to  invoke  the  protection  of  the  amendment." 

Gray,  James  M.,  Limitations  of  Taxing  Power  and  Public 
Indebtedness,   §  1323,   p.   050. 

Magoun  v.  Illinois  Trust  and  Savings  Bank,  170  U.  S.  2S3, 
299.  An  inheritance  tax  law  of  Illinois  was  attacked  on  the 
ground  among  others  that  the  exemptions  contained  in  the  act 
brought  it  into  contiict  with  the  Fourteentli  Amendment.  The 
court  upheld  the  validity  of  the  statute  and  said: 

"  2\or  do  the  exemptions  of  the  statute  render  its  operation 
unecjual  v^ithin  the  meaning  of  the  Fourteenth  Amendment. 
'  The  right  to  make  exemptions  is  involved  in  the  risht  to  se- 
lect the  subjects  of  taxation  and  apportion  the  public  burdens 
among  them,  and  must  consequently  be  imderstood  to  exist  in 
the  lawmaking  power  wherever  it  has  not  in  terms  been  taken 
away.  To  some  extent  it  must  exist  always,  for  the  selection 
of  subjects  of  taxation  is  of  itself  an  exemption  of  what  is  not 
selected.'     Cooley  on  Taxation,  200." 

People  ex  rel.  The  Brush  Electric  Manufacturing  Company 
v.  Wempel,  29  X.  Y.,  543.  A  Xew  York  statute  exempted  manu- 
facturing corporations  from  certain  t&xes.  The  Brush  Electric 
Manufacturing  Company  was  held  to  be  a  manufacturing  eor- 
poraticm  and  entithxi  to  the  exemption. 

II.  As  a  general  rule  Congress  can  not  exempt  particular 
objects  from  taxation  by  the  States. 

This  is.  of  course,  clear.  The  right  of  a  State  to  impose  tax- 
ation can  not  be  limited  from  aKwe  except  where  State  taxation 
would  be  inconsistent  Avith  the  Federal  Constitution.     In  M'Cul- 


260  Land  Credits 

loch  V.  Maryland,  4  Wheat.  316,  Judge  Marshall,  though  he 
held  unconstitutional  the  Maryland  tax  law  which  was  before 
him,  said  of  the  States'  power  of  taxation: 

"  It  is  obvious,  that  it  is  an  incident  of  sovereignty,  and  is 
co-extensive  with  that  to  which  it  is  an  incident.  All  subjects 
over  which  the  sovereign  power  of  a  State  extends,  are  objects 
of  taxation;  but  those  over  which  it  does  not  extend,  are,  upon 
the  soundest  principles,  exempt  from  taxation.  This  proposi- 
tion may  almost  be  pronounced  self-evident."  (See  opinion,  p. 
429.) 

III.  The  fact  that  an  institvition  is  created  by  the  Federal 
government  or  even  that  it  is  a  government  agency  does  not 
finally  preclude  the  States  from  taxing  it.  Congress  may  grant 
the  States  power  to  tax  it  and  taxes  imposed  pursuant  to  such 
a  grant  are  valid. 

The  Act  of  1864  revising  the  National  Bank  Act  provided  for 
certain  taxation  of  National  Banks  by  the  States;  and  it  is 
provided  by  the  Rev.  Stat.    (§5219)   that: 

"  Nothing  herein  shall  prevent  all  tlie  shares  in  any  associa- 
tion from  being  included  in  the  valuation  of  the  personal  prop- 
erty of  the  owner  or  holder  of  such  shares,  in  assessing  taxes 
imposed  by  authority  of  the  State  within  which  the  association 
is  located;  but  the  legislature  of  each  State  may  determine  and 
direct  the  manner  and  place  of  taxing  all  the  shares  of  national 
banking  associations  located  within  the  State,  subject  only  to 
the  two  restrictions,  that  the  taxation  shall  not  be  at  a  greater 
rate  than  is  assessed  upon  other  moneyed  capital  in  the  hands 
of  individuals  of  such  State,  and  that  the  shares  of  any  na- 
tional banking  association  owned  by  non-residents  of  any  State 
shall  be  taxed  in  the  city  or  towa  where  the  bank  is  located, 
and  not  elsewhere.  Nothing  herein  shall  be  construed  to  exempt 
the  real  property  of  associations  from  either  State,  county,  or 
municipal  taxes,  to  the  same  extent,  according  to  its  value,  as 
other  real  property  is  taxed." 

In  Van  Allen  v.  The  Assessors,  3  Wall.  573,  the  Supreme 
Court  held  invalid  a  tax  imposed  by  the  State  of  New  York  on 
shares  in  National  Banks  on  the  ground  that  the  State  levied  no 
tax  on  shares  in  State  banks  and  that  the  act  of  Congress  au- 
thorizing taxation  on  National  Banks  was  therefore  not  com- 
plied with.     But  the  Court  said: 

"  Although  it  has  been  suggested,  yet  it  can  hardly  be  said 
to  have  been  argued,  that  the  provision  in  the  act  of  Congress 
concerning  the  taxation  of  the  shares  by  the  State  is  uncon- 
stitutional.    The  suggestion   is,  that  it  is  a  tax  by  the  State 


Appendix  261 

upon  the  bonds  of  the  government  which  constitute  the  capital 
of  the  bank,  and  which  this  court  has  heretofore  decided  to  be 
illegal.  But  this  suggestion  is  scarcely  well  founded;  for  were 
we  to  admit,  for  the  sake  of  the  argument,  this  to  be  a  tax  of 
the  bonds  or  capital  stock  of  the  bank,  it  is  but  a  tax  upon  the 
new  uses  and  new  privileges  conferred  by  the  charter  of  the 
association;  it  is  but  a  condition  annexed  to  the  enjoyment  of 
this  new  use  and  new  application  of  the  bonds;  and  if  Congress 
possessed  the  power  to  grant  these  new  rights  and  new  privileges, 
which  none  of  the  learned  counsel  has  denied,  and  which  the 
whole  argument  assumes,  then  we  do  not  see  but  the  power  to 
annex  the  conditions  is  equally  clear  and  indisputable." —  3 
Wall.  583. 

In  National  Bank  v.  Commonwealth,  9  Wall.  353,  the  Supreme 
Court  held  that,  since  the  intent  of  Congress  as  manifested  in 
the  National  Bank  Acts  was  not  defeated,  the  Kentucky  Statute 
levying  tax  on  shares  of  stockholders  but  collecting  it  from 
the  bank  itself  was  valid. 

IV.  But  when  the  Federal  government  creates  an  institution 
for  government  purposes,  or  gives  an  institution  the  character 
of  a  government  agency,  there  are  serious  limitations,  unless 
Congress  removes  them,  on  the  power  of  the  States  to  tax  it. 

"  One  of  the  implied  limitations  '  on  the  power  of  States  to 
tax '  is  that  which  precludes  the  States  from  taxing  the  agencies 
whereby  the  general  government  performs  its  functions.  The 
reason  is  that  if  they  possessed  this  authority  it  would  be  within 
their  power  to  impose  taxation  to  an  extent  that  might  cripple, 
if  it  did  not  wholly  defeat  the  operations  of  the  national  autlior- 
ity  within  its  proper  and  constitutional  sphere  of  action." — 
Cooley,   Constitutional  Limitations,  6  Ed.   589. 

In  M'Culloch  V.  Maryland,  4  Wheat.  316,  the  Supreme  Court 
held  that  the  State  of  Maryland  was  without  authority  to  im- 
pose a  tax  on  the  notes  issued  by  the  United  States  Bank  in 
Maryland.  The  argument  was  that  Congress  clearly  had  the 
implied  power  of  creating  the  bank ;  that  "  a  power  to  create 
implies  a  power  to  preserve";  that  "a  power  to  destroy,  if 
wielded  by  a  different  hand  is  hostile  to,  and  incompatible  with 
these  powers  to  create  and  to  preserve,"  that  a  power  to  tax 
is  a  power  to  destroy;  and  that  "where  this  repugnancy  exists 
that  authority  which  is  supreme  must  control."  The  sover- 
eignty of  a  State  does  not  extend  to  the  means  employed  by 
Congress  to  carry  its  powers  into  execution. 

"  States  have  no  power  by  taxation  or  otherwise  to  retard, 
impede,  burden,  or  in  any  manner  control  the  operations  of  the 


262  Land  Credits 

constitutional  laws  enacted  by  Congress  to  carry  into  execution 
the  powers  vested  in  the  general  government." 

In  Railroad  Company  v.  Peniston,  18  Wall.  5,  it  Avas  said  of 
the  rule  exempting  Federal  agencies  from  taxation: 

"  The  reason  of  the  rule  marlis  its  limitations.  The  National 
government  must  be  free  to  use  such  means  as  it  selects,  to 
carry  out  its  functions,  else  it  can  not  exist.  When  a  State  tax 
impairs  the  efficiency  of  any  instrumentality  which  Congress 
selects  to  carry  out  the  legitimate  purposes  of  the  Federal  gov- 
ernment, it  is  unconstitutional.  When  it  does  not  have  that 
effect,  it  is  within  the  competency  of  the  State  to  impose  it." — 
18  Vv'all.  17. 

"  It  is,  therefore,  manifest  that  exemption  of  Federal  agencies 
from  State  taxation  is  dependent,  not  upon  the  nature  of  the 
agents,  or  upon  the  mode  of  their  constitution,  or  upon  the 
fact  that  they  are  agents,  but  upon  the  eilect  of  the  tax;  that 
is,  upon  the  question  whether  the  tax  does  in  truth  deprive 
them  of  povv^er  to  serve  the  government  as  they  were  intended 
to  serve  it,  or  does  hinder  the  efficient  exercise  of  their  power. 
A  tax  upon  their  property  has  no  such  necessary  effect.  It 
leaves  them  free  to  discharge  the  duties  they  have  undertaken 
to  perform.  A  tax  upon  their  operations  is  a  direct  obstruction 
to  the  exercise  of  Federal  powers." — 18  Wall.  3G-37. 

The  outlines  of  the  rule  and  its  application  to  the  present 
matter  can  best  be  considered  by  reviewing  first,  the  kinds  of 
institutions  or  agencies  which  have  been  held  to  be  entitled  as 
government  agencies  to  some  exemptions  from  State  taxation; 
and  second,  the  kinds  of  exemptions  from  taxation  to  which 
Federal  agencies  have  been  held  to  be  entitled. 

a.  What  constitute  government  agencies  for  purposes  of  tax 
exemption. 

1.  The  old  United  States  Bank.  M'Culloch  v.  Maryland,  4 
Wheat.  316. 

2.  Present  national  banks.  VanAUen  v.  The  Assessors,  3 
Wall.  573.  The  State  tax  on  National  Banks  was  held  invalid 
as  being  outside  the  authority  conferred  by  Congress.  It  was 
held  that  the  State  had  no  authority  to  tax  the  shares  of  a 
government  agency  such  as  a  national  bank,  except  as  Congress 
especially  conferred  such   authority. 

Owensboro  National  Bank  v.  Owensboro,  173  U.  S.  664.  A 
Kentucky  Statute  imposing  "  a  franchise  "  tax  on  national  banks 
in  Kentucky  was  found  to  have  no  warrant  in  the  authority 
given  the  States  by  the  National  Bank  Act.  The  tax  was  ac- 
cordingly  held   to   be   unconstitutional   on   the   ground   that   the 


Appendix  263 

banks  were  government  agencies  and  could  be  taxed  by  the  States 
only  in  ways  which  Congress  had  authorized. 

Third  National  Bank  v.  Stone,  174  U.  S.  432.  A  tax  on  the 
franchise  and  property  of  a  national  bank  was  again  held  un- 
constitutional because  the  act  of  Congress  had  not  authorized 
such  taxation. 

3.  Companies  having  franchises  conferred  by  Federal  gov- 
ernment. 

California  v.  Pacific  Railroad  Company,  127  U.  S.  1.  The 
Central  Pacific  Railroad  Company  and  other  companies  which 
held  charters  granted  by  Congress  contended  that  their  fran- 
chises were  not  subject  to  assessment  and  taxation  by  the  State 
of  California.  The  Supreme  Court  uplield  their  contention  on 
the  ground  that  the  franchises  represented  power  conferred  upon 
the  railroads  and  by  the  Government  of  the  United  States.  "  The 
power  conferred  emanates  from,  and  is  a  portion  of,  the  power 
of  the  government  that  confers  it.  To  tax  it  is  not  only  derog- 
atory to  the  dignity,  but  subversive  of  the  powers  of  the  gov- 
ernment, and  repugnant  to  its  paramount  sovereignty." 

4.  Federal  Officers. 

Dobbins  v.  The  Commissioners,  16  Pet.  435.  A  captain  of  the 
revenue-cutter  service  stationed  in  Pennsylvania  was  assessed  for 
county  taxes  on  the  salary  he  received  from  the  government. 
The  Supreme  Court  held  that  a  Federal  salary  was  not  subject 
to  State  taxation.  The  tax  was  regarded  as  an  interference  by 
the  State  with  the  discretion  of  Congress  in  fixing  the  salaries 
of  its  agents. 

5.  United  States  Bonds. 

It  is  entirely  clear  that  States  can  not  tax  in  any  way  bonds 
of  the  Government  of  the  United  States. 

Weston  V.  Charleston,  2  Pet.  449.  To  tax  government  bonds 
would  be  to  tax  the  exercise  of  the  borrowing  power  of  Congress 
and  no  power  of  Congress  may  be  taxed  by  the  States. 

6.  Institutions  organized  primarily  for  profit  are  not  entitled 
to  the  benefit  of  exemption  as  government  agencies. 

Osborn  v.  The  United  States  Bank,  9  Wheat.  738.  The  Su- 
preme Court  in  an  opinion  by  Chief  Justice  Marshall  held  void 
a  tax  imposed  by  a  State  upon  the  bank  of  the  United  States. 
But  Chief  Justice  Marshall  speaking  for  the  Court  delivered  an 
important  dictum  to  the  effect  that  the  bank  would  not  be  exempt 
from  State  taxation,  if  essentially  a  private  enterprise  for  private 
profit. 

"  The  foundation  of  the  argument  in  favor  of  the  right  of  a 
State  to  tax  the  bank,  is  laid  in  the  supposed  character  of  that 


264 


Land  Credits 


Institution.  The  argument  supposes  the  corporation  to  have 
been  originated  for  the  management  of  an  individual  concern,  to 
be  founded  upon  contract  between  individuals,  having  private 
trade  and  private  profit  for  its  great  end  and  principal  object. 
If  these  premises  were  true,  the  conclusion  drawn  from  them 
•would  be  inevitable.  This  mere  private  corporation,  engaged  in 
its  own  business,  with  its  own  views,  would  certainly  be  subject 
to  the  taxing  power  of  the  State,  as  any  individual  would  be; 
and  the  casual  circumstance  of  its  being  employed  by  the  gov- 
ernment in  the  transaction  of  its  fiscal  affairs,  would  no  more 
exempt  its  private  business  from  the  operation  of  that  power, 
than  it  would  exempt  the  private  business  of  any  individual 
employed  in  the  same  manner.  But  the  premises  are  not  true; 
the  bank  is  not  considered  as  a  private  corporation,  whose  prin- 
cipal object  is  individual  trade  and  individual  profit;  but  as  a 
public  corporation,  created  for  public  and  national  purposes." — 
9  Wheat.  859. 

b.  What  taxes  are  within  the  exemption  from  State  taxation 
to  which  an  agency  of  the  Federal  government  is  entitled. 

1.  Taxes  on  the  franchises  granted  by  the  Federal  government. 

California  v.  Pacific  Railroad  Company,  127  U.  S.  1.  In  hold- 
ing invalid  a  California  tax  on  the  Federal  franchises  of  rail- 
roads the  United  States  Supreme  Curt  pointed  out  that  a  fran- 
chise, whether  to  act  in  a  corporate  capacity  or  to  operate  a 
railroad,  necessarily  emanates  from  public  authority  and  con- 
tinued : 

"  In  view  of  this  description  of  the  nature  of  a  franchise,  how 
can  it  be  jjossible  that  a  franchise  granted  by  Congress  can  be 
subject  to  taxation  by  a  State  without  the  consent  of  Congress? 
Taxation  is  a  burden,  and  may  be  laid  so  heavily  as  to  destroy 
the  thing  taxed,  or  render  it  valueless.  As  Chief  Justice  Mar- 
shall said  in  M'Culloch  v.  Maryland,  '  the  power  to  tax  involves 
the  power  to  destroy.'  Recollecting  the  fundamental  principle 
that  the  Constitution,  laws  and  treaties  of  the  United  States  are 
the  supreme  law  of  the  land,  it  seems  to  us  almost  absurd  to 
contend  that  a  power  given  to  a  person  or  corporation  by  the 
United  States  may  be  subjected  to  taxation  by  a  State." —  127 
U.  S.  41. 

2.  Taxes  on  the  business,  and  operations  of  a  government 
agency. 

M'Culloch  V.  Maryland,  4  Wheat.  316.  In  holding  invalid  a 
Maryland  tax  on  the  notes  issued  in  Maryland  by  the  United 
States  Bank,  the  Supreme  Court  emphasized  the  fact  that: 

"  This  is  a  tax  on  the  operations  of  the  bank,  and  is,  conse- 


Appendix  265 

quently,  a  tax  on  the  operation  of  an  instrument  employed  by 
the  Government  of  the  Union  to  carry  its  powers  into  execution. 
Such  a  tax  must  be  unconstitutional." —  4  Wheat.  436. 

3.  The  shares  of  stock  in  government  agencies  —  specifically 
banks  —  have  been  treated  differently  in  the  decisions  regarding 
the  old  United  States  Bank  and  decisions  regarding  the  present 
national  banks. 

In  M'Culloch  v.  Maryland,  4  Wheat.  316,  436,  the  Supreme 
Court,  while  it  held  void  a  tax  imposing  a  direct  burden  on 
the  operations  of  the  Bank  of  the  United  States,  was  careful  to 
point  out  that  the  opinion, 

"  does  not  extend  to  a  tax  paid  by  the  real  property  of  the 
bank,  in  common  with  the  other  real  property  witliin  the  State, 
nor  to  a  tax  imposed  on  the  interest  which  the  citizens  of  Mary- 
land may  hold  in  this  institution,  in  common  with  other  prop- 
erty of  the  same  description  throughout  the  State." 

In  other  words  the  character  of  the  bank  as  a  government 
agency  did  not  preclude  the  State  from  taxing  its  shares  of  stock 
in  the  hands  of  its  share-holders.  No  permission  from  Congress 
was  necessary  to  make  the  imposition  of  such  a  tax  valid. 

It  was  accordingly  held  in  two  cases  in  the  Supreme  Court 
of  South  Carolina  that  the  State  might  impose  taxes  on  shares 
and  dividends. 

In  Bulow  V.  Charleston,  1  Nott  and  McC.  527,  it  was  decided 
that  a  tax  on  shares  of  stock  in  the  United  States  Bank  held  by 
individuals  was  valid;  and  in  State  ex  rel.  Berney  v.  Tax  Col- 
lector, 2  Bail.  L.  654,  the  same  conclusion  was  reached  with  re- 
spect to  dividends. 

In  decisions  under  the  National  Bank  Acts  it  has  been  held 
on  the  contrary,  that  the  States  are  without  power  to  tax  stock 
in  national  banks,  except  in  the  way,  and  to  the  extent,  which 
Congress  has  authorized. 

4.  With  respect  to  the  property  of  government  agencies  the 
decisions  are  not  altogether  in  accord. 

In  M'Culloch  V.  Maryland,  4  Wheat.  316,  the  Supreme  Court 
clearly  expressed  its  opinion  that  the  real  property  of  the  United 
States  Banlv  might  be  taxed  by  the  States  without  Congressional 
permission.  (Quotation  is  given  above.)  And  it  was  not  sug- 
gested that  there  was  any  difference  in  this  respect  between 
the  real  property  and  personal  property.  The  effect  of  the  de- 
cision was  simply  that  the  operations  of  the  bank  might  not  be 
burdened  by  State  taxation. 

With  respect  to  institutions  which  derive  their  character  as 
government    agencies    from    a    Federal    franchise,    the    Supreme 


266  Land  Credits 

Court  in  the  latter  half  of  the  nineteenth  centiiry  has  held,  in 
entire  accordance  with  the  opinion  of  M'CuUock  v.  Maryland,  that 
the  property  both  real  and  personal  of  government  agencies  may 
be  taxed  by  the  States. 

In  Railroad  Company  v.  Peniston,  18  Wall.  5,  the  Supreme 
Court  held  that  "  real  and  personal  property  of  the  agent " 
might  be  "  taxed  in  common  with  all  other  property  in  the  State 
of  a  similar  character.  It  is  impossible  to  maintain  that  this 
is  an  interference  with  the  exercise  of  any  power  belonging  to 
the  general  government,  and  if  it  is  not,  it  is  prohibited  by  no 
constitutional  implication." 

"  A  very  large  proportion  of  the  property  within  the  States 
is  employed  in  execution  of  the  powers  of  the  government.  It 
belongs  to  governmental  agents,  and  it  is  not  only  used,  but  it 
is  necessary  for  their  agencies.  United  States  mails,  troops,  and 
munitions  of  war  are  carried  upon  almost  every  railroad.  Tele- 
graph lines  are  employed  in  the  national  service.  So  are  steam- 
boats, horses,  stage-coaches,  foundries,  ship-yards,  and  multi- 
tudes of  manufacturing  establishments.  They  are  the  property 
of  natural  persons,  or  of  corporations,  who  are  instruments  or 
agents  of  the  general  government,  and  they  are  the  hands  by 
which  the  objects  of  the  government  are  attained.  Were  they 
exempt  from  liability  to  contribute  to  the  revenue  of  the  States 
it  is  manifest  the  State  governments  would  be  paralyzed.  While 
it  is  of  the  utmost  importance  that  all  the  powers  vested  by 
the  Constitution  of  the  United  States  in  the  general  government 
should  be  preserved  in  full  efficiency,  and  while  recent  events 
have  called  for  the  most  unembarrassed  exercise  of  many  of 
those  powers,  it  has  never  been  decided  that  State  taxation  of 
such  property  is  impliedly  prohibited." —  18  Wall.  33. 

But  the  personal  property  of  the  present  national  banks,  which 
Rev.  Stat.  §  5219,  does  not  expressly  authorize  to  be  taxed  but 
the  taxation  of  which  is  nowhere  expressly  forbidden,  has  been 
repeatedly  held  to  be  exempt  from  taxation. 

People  V.  National  Bank,   123  Cal.  53. 

Rosenblatt  v.  Johnson,   104  U.  S.  462. 

Mortgages  held  by  national  banks  were  decided  to  be  exempt 
from  State  taxation  in  First  National  Bank  v.  Krieg,  21  Nev. 
404. 

5.  Taxes  on  the  salaries  of  Federal  officers. 
Dobbins  v.  The  Commissioners,    16  Pet.   435. 

6.  It  has  been  held  in  several  cases  that  the  present  national 
banks  are  exempt  from  all  State  ta.xation,  except  such  taxation 
as  Congress  has  authorized. 


Appendix  267 

In  Owensboro  National  Bank  v.  Owensboro,  173  U.  S.  664,  in 
holding  invalid  a  Kentucky  "  franchise "  tax  on  national  banks 
the  Supreme  Court  quoted  from  Davis  v.  Elmira  Savings  Bank, 
161  U.  S.  283,  to  the  effect  that  national  banks  were  govern- 
ment instrumentalities  and  that  any  State  action  which  impaired 
the  efficiency  of  those  government  instrumentalities  was  void. 
The  Court  proceeded: 

"  It  follows  then  necessarily  from  these  conclusions  that  the 
respective  States  would  be  wholly  without  power  to  levy  any 
tax,  either  direct  or  indirect,  upon  the  national  banks,  their 
property,  assets,  or  franchises,  were  it  not  for  the  permissive 
legislation  of  Congress.  The  first  act  providing  for  the  organ- 
ization of  national  banks,  passed  February  25,  1863,  c.  58,  12 
Stat.  665,  contained  no  grant  of  power  to  the  States  to  tax  na- 
tional banks  in  any  form  whatever.  Doubtless  the  far-reach- 
ing consequence  to  arise  from  depriving  the  States  of  the  source 
of  revenue  which  would  spring  from  the  taxation  of  such  banks, 
and  the  error  of  not  conferring  the  power  to  tax,  early  impressed 
itself  upon  Congress;  for  the  following  year,  act  of  June  3,  1864, 
c.  106,  13  Stat.  99,  power  was  granted  to  the  States,  not  to  tax 
the  banks,  their  franchises  or  property,  but  to  tax  the  shares  of 
stock  in  the  names  of  the  shareholders.  This  provision  subse- 
quently was  amended  and  supplemented  in  various  particulars, 
act  of  February  4,  1868,  c.  6,  15  Stat.  34,  and  the  result  of  this 
legislation  is  embodied  in  Section  5219  of  the  Eevised  Statutes." 
—  173  U.  S.  668. 

The  Court  here  quoted  Rev.  Stat.  §  5219. 

"  This  section,  then,  of  the  Revised  Statutes  is  the  measure 
of  the  power  of  a  State  to  tax  national  banks,  their  property 
or  their  franchises.  By  its  unambiguous  provisions  the  power 
is  confined  to  a  taxation  of  the  shares  of  stock  in  the  names  of 
the  shareholders  and  to  an  assesment  of  the  real  estate  of  the 
bank.  Any  State  tax  therefore  which  is  in  excess  of  and  not 
in  conformity  to  these  requirements  is  void." —  173  U.  S.  669. 

The  theory  expressed  in  this  case,  that  the  States  can  not  tax 
government  agencies  except  by  special  permission  of  Congress, 
is  clearly  in  conflict  with  the  view  of  M'Culloch  v.  Maryland. 

This  case  was  followed  in  the  Third  National  Bank  v.  Stone, 
174  U.  S.  432,  and  its  authority  seems  to  be  established. 

V.  Congress  may  probably  by  legislation  make  certain  ex- 
tensions of  the  rule  exempting  government  agencies  from  tax- 
ation. 

This  may  perhaps  be  put  on  the  general  doctrine  of  implied 
powers  established  by  M'Culloch  v.  Maryland,  and  held  in  that 


268  Land  Credits 

case  to  justify  the  establishment  of  the  United  States  bank. 
The  right  to  exempt  from  taxation  when  desirable  for  the  exe- 
cution of  a  purpose  within  the  Federal  authority  is  hardly  a 
stronger  application  of  the  principle  of  implied  powers  than,  for 
example,  the  right  to  condemn  land.  Of  this  latter  right  the 
Supreme  Court  said  in  United  States  v.  Gettysburg  Electric 
Railroad  Company,  160  U.  S.  668,  in  holding  that  Congress  might 
authorize  the  condemnation  of  land,  in  its  own  discretion,  for 
purposes  of  a  national  park, 

"  It  is,  of  course,  not  necessary  that  the  power  of  condemna- 
tion for  such  purpose  be  expressly  given  by  the  Constitution. 
The  right  to  condemn  at  all  is  not  so  given.  It  results  from 
the  powers  that  are  given,  and  it  is  implied  because  of  its 
necessity,  or  because  it  is  appropriate  in  exercising  those 
powers."— 160  U.   S.  681. 

The  extension  of  the  rule  of  exemption  from  taxation  may 
take  the  form: 

a.  Of  a  congressional  declaration  that  an  institution  which 
might  not  otherwise  be  thought  a  government  agency  is  such  an 
agency.  The  courts  will,  of  course,  pass  upon  the  validity  of 
the  exemption  and  no  doubt  there  are  limits  on  the  power  of 
Congress  to  make  a  thing  a  government  agency  by  merely  de- 
claring it  so;  but  to  quote  from  United  States  v.  Gettysburg 
Electric  Railway  Company,  160  U.  S.  668,  680: 

"  It  is  stated  in  the  second  volume  of  Judge  Dillon's  work  on 
Municipal  Corporations  (4th  ed.  §  600),  that  when  the  legislature 
has  declared  the  use  or  purpose  to  be  a  public  one,  its  judgment 
will  be  respected  by  the  courts,  unless  the  use  be  palpably  with- 
out reasonable  foundation.  Many  authorities  are  cited  in  the 
note,  and,  indeed,  the  rule  commends  itself  as  a  rational  and 
proper  one." 

b.  Of  the  erection  of  particular  exemptions  from  taxation  by 
express  enactment: 

"  from  the  line  of  decisions  in  the  national  bank  cases,  and 
from  the  reason  of  the  rule  which  exempts  Federal  agencies,  it 
is  probable  that  Congress  may,  by  express  legislation,  exempt 
from  State  taxation  so  much  at  least  of  the  property  of  such 
corporation  as  is  actually  used  in  the  Federal  employment  and 
necessary  to  the  discharge  of  such  employment." — Gray,  James 
M.,  Limitations  of  Taxing  Power  and  Public  Indebtedness,  §  774. 

In  Thomson  v.  Pacific  Railroad,  9  Wall.  579,  in  which  the 
Supreme  Court  held  that  a  railroad  engaged  in  the  service  of 
the  Government  was  not  by  that  fact  alone  exempt  from  State 
taxation,  the  Coui't  said: 


Appendix  269 

"  We  do  not  doubt,  however,  that  .  .  .  Congress  may,  in  the 
exercise  of  powers  incidental  to  the  express  powers  mentioned 
by  counsel,  make  or  authorize  contracts  with  individuals  or  cor- 
porations for  services  to  the  government;  may  grant  aids,  by 
money  or  land,  in  preparation  for,  and  in  the  performance  of, 
such  services;  may  make  any  stipulations  and  conditions  in  rela- 
tion to  such  aids  not  contrary  to  the  Constitution;  and  may 
exemjot,  in  its  discretion,  the  agencies  emjjloyed  in  such  services 
from  any  State  taxation  which  will  really  prevent  or  impede  the 
performance  of  them."— 9   Wall.   588-589. 

In  Northern  Pacific  Railroad  v.  Garland  (Mont.),  3  Pac.  134, 
the  Supreme  Court  of  Montana  held  that  Congress  could  include 
in  the  grant  of  a  right  of  way  an  exemption  of  the  right  of 
way  from  State  taxation.  Such  an  exemption  was  enforced  and 
a  State  tax  in  conflict  with  it  held  void. 

In  City  and  County  of  San  Francisco  v.  The  National  Bank, 
an  exemption  of  the  personal  property  of  a  national  bank  from 
State  taxation  was  put  upon  the  ground  that  the  effect  of  Rev. 
Stat.   §  5219  is  to  create  such  an  exemption.     92   Fed.   273. 

VI.  Certain  activities  which  Congress  has  power  to  regulate 
are,  by  that  fact,  exempt  from  State  taxation. 

This  has  been  several  times  held  of  inter-state  commerce.  In 
Gloucester  Ferry  Company  v.  Pennsylvania,  114  U.  S.  196,  the 
Supreme  Court  held  void  a  Pennsylvania  tax  upon  the  foreign 
corporation  whose  only  business  in  the  State  was  the  receiving 
and  discharging  of  inter-state  passengers.  The  Court  says  of 
inter-state  commerce: 

"  The  power  to  regulate  that  commerce,  as  well  as  commerce 
with  foreign  nations,  vested  in  Congress,  is  the  power  to  pre- 
scribe the  rules  by  wliich  it  shall  be  governed,  that  is,  the  con- 
ditions upon  which  it  shall  be  conducted;  to  determine  when  it 
shall  be  free  and  when  subject  to  duties  or  other  exactions. 
The  power  also  embraces  within  its  control  all  the  instrumen- 
talities by  which  that  commerce  may  be  carried  on,  and  the 
means  by  which  it  may  be  aided  and  encouraged." — 114  U.  S. 
203-204. 

In  Minot  v.  Railroad  Company,  2  Abb.  (U.  S.)  341,  Fed.  Cas. 
9645,  a  State  tax  on  the  rolling  stock  of  railroads  was  held  void 
as  interfering  with  inter-state  commerce. 

VII.  Property  held  in  the  name  of  the  United  States  is  none 
the  less  exempt  from  State  taxation  because  it  is  held  in  trust 
for  private  persons. 

For  example,  in  United  States  v.  Rickert,  188  U.  S.  432,  it 
was  held  that  lands  allotted  by  the  United  States  to  Indians 


270  Land  Credits 

and  not  yet  conveyed,  but  held  by  the  United  States  in  trust 
for  the  Indians,  could  not  be  taxed  by  a  State. 

PART   TWO 

Suggested  points  for  a  Brief  in  favor  of  the  Constitutionality  of 
the  proposed  exemption. 

1.  The  Constitution  does  not  require  these  shares  and  mort- 
gages to  be  taxed.     See  I  above. 

2.  The  exemption  of  agents  of  the  Federal  government  from 
taxation  is  plain  on  principle  and  on  authority  of  decided  cases. 

a.  Principle.     See  IV  above. 

b.  Authority.     See  IV  a  and  IV  b  above. 

3.  The  proposed  banks  will  be  government  agencies. 

a.  In  §  29  of  S.  5542  mortgages  executed  to  the  banks  are 
expressly  declared  to  be  instrumentalities  of  the  government 
of  the  United  States.  A  declaration  of  this  kind  has  weight. 
See  Va  above.  The  proposed  organizations  can  not  be  said  to 
be  "  palpably  without "  the  sphere  of  government  agencies. 

b.  That  the  banks  may  be  authorized  or  created  by  Con- 
gress for  the  contemplated  purposes  —  the  encouragement  of 
agriculture  and  the  like  —  is  not  understood  to  be  questioned. 
It  is  hardly  more  doubtful  than  the  constitutionality  of  the 
department  of  agriculture.  It  may  be  implied  from  the  first 
and  last  paragraphs  of  §  8  in  Art.  I  of  the  Constitution  and  it 
is  made  clear  by  the  case  of  M'Culloch  v.  Maryland.  And  what- 
ever is  duly  created  by  Congress  for  the  accomplishment  of  a 
purpose  which  Congress  is  authorized  to  accomplish,  performs 
a  government  function  and  is  logically  a  government  agency. 

c.  It  has  been  repeatedly  decided  by  the  courts  that  institu- 
tions of  quite  as  little  public  character  as  these  banks  are  gov- 
ernment agencies.     See  IV  a  above. 

4.  The  exemptions  which  it  is  proposed  to  enact  are  less  in- 
clusive than  those  which  the  United  States  Supreme  Court  has 
declared  government  agencies  are  entitled  to  in  the  absence  of 
any  enactment.  The  States  are  permitted,  in  S.  5542,  to  tax  the 
real  estate  of  banks;  while  the  Supreme  Court  has  laid  it  down 
that  without  congressional  permission  no  State  tax  can  be  im- 
posed on  government  agencies.     See  IV  b  6  above. 

5.  The  legislature  which  creates  a  government  agency  is  in 
the  best  position  to  judge  what  exemption  from  taxation  the 
proper  execution  of  its  functions  requires.  Therefore,  even  if 
the  proposed  exemption  were  wider  than  those  which  would 
arise  without  enactment,   the  validity   of  the  exemption   under 


Appendix  271 

the  rule  that  agencies  of  the  Federal  government  may  not  be 
hampered  by  the  States  should  be  recognized. 

6.  If,  as  is  provided  in  §  18  of  S.  5542,  the  mortgages  in 
question  are  assigned  in  trust  to  an  officer  of  the  Federal  gov- 
ernment in  his  official  capacity,  they  become  entitled  to  exemp- 
tion from  State  taxation  on  that  account.     See  VII  above. 

PABT    THREE 

Suggested   points   for   a   Brief   against  the   Constitutionality  of 
the   proposed  exemption. 

1.  Taxation  is  confessedly  an  incident  of  sovereignty.  Judge 
Marshall,  in  M'Culloch  v.  Maryland,  agreed  that  "  all  subjects 
over  which  the  sovereign  power  of  a  State  extends  are  objects 
of  taxation,  but  those  over  which  it  docs  not  extend  are  upon 
the  soundest  principles  exempt  from  taxation." 

The  proposal,  then,  is  to  raise  a  numerous  and  powerful 
body  of  corporations  scattered  through  the  States  and  remove 
them  from  the  sovereignty   of  the   States. 

2.  The  Federal  Constitution  should  not  be  taken  to  authorize 
such  a  step  on  the  part  of  the  Federal  government  unless  the 
authorization  is  fairly  clear.  And  it  is  by  no  means  clear.  The 
enumeration  of  powers  of  Congress  in  §  8  of  Art.  I  makes  no 
provision  for  the  exemption  of  anything  by  Congress  from  State 
taxation.  Neither  does  the  Constitution  at  any  point  provide 
that  agencies  created  by  the  Federal  government  and  serving  it 
shall  be  ipso  facto  exempt  from  State  taxation.  JMoreover,  §  10 
of  Art.  I  enumerates  various  things  which  States  are  forbidden 
to  do.  The  2d  paragraph  of  this  section  specifically  forbids  the 
laying  of  duties  on  imports  or  exports  without  the  consent  of 
Congress;  but  there  is  no  corresponding  provision  regarding  the 
taxation  of   agencies  which  serve  the   Federal  government. 

3.  The  argument  for  the  constitutionality  of  the  exemption 
must  rest  upon  M'Culloch  v.  Maryland,  the  cases  which  purport 
to  follow  it,  and  the  reasoning  which  supports  it.  Does  the 
authority  of  these  cases,  and  particularly  of  M'Culloch  v.  Mary- 
land, cover  the  present  case? 

a.  The  proposed  banks  would  be  far  less  truly  government 
agencies  than  the  United  States  bank  whose  position  Marshall 
was  considering.  Seven  million  dollars'  worth  of  the  thirty- 
five  million  dollars  of  stock  in  the  United  States  bank  was  sub- 
scribed and  paid  for  by  the  Government  of  the  United  States 
(Act  of  April  10,  1816,  §1:  3  Stat.  266).  The  funds  of  the 
rural  land  banks  are  to  be  private  funds.     Judge  Marshall  him- 


272  Land  Credits 

self,  speaking  for  the  court  in  Osborne  v.  United  States  Bank 
(9  Wheat.  738,  859)  said  that  institutions  organized  primarily 
for  private  profit  would  be  completely  subject  to  State  taxation 
in  spite  of  being  organized  and  used  by  the  Federal  government. 

b.  An  institution  may  be  wholly  subject  to  the  sovereignty 
of  a  State,  or  in  a  greater  or  less  degree  relieved  from  such 
sovereignty.  Tlie  present  proposal  is  to  remove  the  banKs  com- 
pletely from  the  sovereignty  of  the  States  with  respect  to  taxa- 
tion, with  the  sole  exception,  in  the  case  of  S.  5542,  of  taxes 
on  their  real  estate.  In  M'CulIoch  v.  Maryland  the  operations 
only  of  the  United  States  bank  were  held  to  be  so  removed  from 
State  sovereignty  that  they  could  not  be  taxed.  The  court  was 
far  from  making  any  such  proposition  as  to  shares  of  stock  in 
the  hands  of  individuals,  or  any  of  the  bank's  property  real  or 
personal.  The  implication  in  the  opinion  that  none  of  the 
bank's  property  and  no  interest  of  individuals  in  the  bank  was 
exempt  from  taxation  is  clear. —  4  Wheat.  436.  See  above 
IV  b  3. 

c.  It  appears  from  the  opinion  in  M'CulIoch  v.  Maryland  that 
the  Court  which  rendered  it  believed  not  only  that  the  States 
had  power  so  far  as  the  Constitution  was  concerned  to  tax  the 
property  and  the  stock  of  a  bank  which  was  a  government 
agency,  but  that  the  power  could  not  be  modified  by  Federal 
action.  This  appears  notably  in  the  last  paragraph  of  the 
opinion.  It  is  there  said :  "  This  opinion  does  not  deprive  the 
States  of  any  resources  which  they  originally  possessed.  It  does 
not  extend  to  a  tax  paid  by  the  real  property  of  the  bank,  in 
common  with  the  other  real  property  within  the  State,  nor  to 
a  tax  imposed  on  the  interest  which  the  citizens  of  Maryland 
may  hold  in  this  institution,  in  common  with  other  property 
of  the  same  description  throughout  the  State."  (4  Wheat.  436.) 
In  other  words,  to  prevent  the  States  from  taxing  the  real  prop- 
erty —  or,  so  far  as  appears,  the  personal  property  —  of  the 
bank  or,  to  prevent  them  from  taxing  its  shares,  toould  deprive 
States  of  resources  which  they  originally  possessed.  This,  of 
course,  neither  the  courts  nor  Congress  can  constitutionally  do. 

d.  Undoubtedly  it  has  been  held  in  later  cases  that  the 
property,  real  or  personal,  of  government  agencies  is  exempt 
from  State  taxation  unless  Congress  permits  it  to  be  taxed. 
But  the  contrary  has  also  been  held,  as  in  Railroad  Company 
V.  Peniston,  18  Wal.  33.  And  it  is  fairly  clear  that  the  errone- 
ous decisions  which  exempt  all  the  property  of  government 
agencies  except  so  far  as  Congress  has  authorized  their  taxation, 
would  not  have  been  rendered  but  for  the  mistaken  belief  that 
M'CulIoch  V.  Maryland  so  required. 


Appendix  273 

Further,  while  it  has  been  decided  in  various  cases  that  shares 
of  national  bank  stock  in  the  hands  of  individuals  may  be 
taxed  only  in  accordance  with  the  permission  ox  Congress,  and 
language  has  been  used  to  the  effect  that  Congress  might  exempt 
such  shares  altogether  from  taxation,  it  is  very  doubtful  whether 
a  complete  exemption  of  shares  of  stock  from  State  taxation  by 
act  of  Congress,  such  as  the  proposed  legislation  contemplates, 
has  ever  been  undertaken  and  upheld. 

4.  There  is  a  fatal  defect  in  the  reasoning  on  which  the 
constitutionality  of  wide  exemptions  of  government  agencies 
from   State  taxation  is  supported. 

The  power  to  tax,  it  is  said  from  Marshall  to  Cooley,  involves 
a  power  to  destroy.  At  the  very  least  it  involves  a  power 
seriously  to  hamper.  For  this  reason,  it  is  contended,  agencies 
which  the  Federal  government  uses  in  the  execution  of  any  of 
its  functions  must  be  immune  from  taxation  by  the  States. 
Probably  this  theory  in  its  application  to  Federal  agencies  was 
never  consistently  entertained.  Certainly  it  was  not  by  Justice 
Marshall,  since  he  allowed  that  the  real  property  and  the  shares 
of  stock,  at  least,  of  these  agencies,  were  subject  to  State  taxa- 
tion. If  taxes  on  the  "  operations "  of  an  institution  might 
hamper  or  destroy  it,  so  might  taxes  on  its  property  or  its 
stock. 

But  the  theory,  fundamental  to  the  support  of  the  exemption, 
that  the  power  to  tax  involves  a  power  to  destroy,  is,  in  the 
United  States,  simply  untrue.  It  is  flatly  contradicted  by  the 
established  principle  of  tax  cases  and  numberless  public  service 
rate  cases  that  a  legislative  body  whose  power  to  tax  is  im- 
questioned  may  not  proceed  to  confiscate,  or  even  to  render 
wholly  unprofitable  —  or  even  to  reduce  profit  to  an  unreason- 
ably low  point.  The  assumed  necessity  of  exempting  govern- 
ment agencies  from  taxation  in  order  that  their  existence  and 
prosperity  may  not  be  imperiled  has  no  foundation  in  fact. 


INDEX 


INDEX 


Administration    Charges, 

amount     of,     allowed     under 

the    Commission,    Sub-com- 

niittee,    and    Senate    Com- 
mittee   Bills,    extravagant, 

91-93 
how   measured,   89 
of  land  credit  institutions  of 

other    countries,    93-99 
of     the     Credit     Foncier     of 

France,  93,  98 
of      the      Prussian      Central 

Land    Credit    Company    of 

Germany,  94,  98 
of  Landschaften,   94-95,   96 
of    the    seventeen    provincial 

mortgage       institutes       of 

Lower  Austria,   95 
of      the      Hungarian       land 

credit  institutions,  9G,  97 
of    the    Bavarian    Mortgage 

and    Exchange    Bank,    96, 

97 
of   the    South   German   Land 

Credit  Bank,  96,  97 
of  the  Bavarian  Union  Bank, 

96,  97 
of  the  Bavarian  Commercial 

Bank,  96,  97 
of  the  Credit  Union  of  Wiirt- 

temberg,   97 
of  Nassau  Mortgage  Savings 

Bank,  98 
of  the  Landschaft  of  Saxony, 

98 
of  the  Bavarian  Agricultural 

Bank,  96 
provisions  relative  to,  in  the 

Commission,     Sub-Commit- 
tee, and  Senate  Committee 

Bills,  89-91 


Administration  Charges  —  cont. 

under  the   Commission,    Sub- 
Committee,      and      Senate 
Committee  Bills,  89-91 
Adequate  credit,  70-86 

Commission,  Sub-Committee, 
and  Senate  Committee 
Bills,  may  not  furnish,  70 

purchase  of  farm  mortgage 
bonds  by  the  Government, 
will  not  insure,  at  a  low 
rate  of  interest,  234,  235 

system   which    does   not   fur- 
nish, will  be  a  failure,  70 
Agi'icultural    Bank    of    Lgypt, 
60 

controlled  by  State,  241 
Agi'icultural    Bank   of   Queens- 
land, 

public   institution,   61 
"  Agricultural        Credit        and 
Agricultural      Cooperation 
in  Germany," 

by  J.   R.   Cahill,  viii 

printed  as   Senate  Document 

No.  17,  63rd  Congress,  viii 

"  Agricultural  Cooperation  and 

Rural    Credit   in    Europe," 

report  of  United  States  and 
American  Commissions,  viii 

Senate  Doc.  214,  viii 
Agriculture, 

chief  industry,  xi 

non-farming  population  in- 
terested in  growth  of,  xiii 

number  of  persons  engaged 
in,  xix 

other  industries  depend  on, 
for  support,  xii 

value  of  annual  products  of, 
compared    with     value    of 


277 


278 


Index 


Agriculture  —  continued 

annual  products  of  manu- 
facturing,  xi,   xii 
AgTicultui-al  Appropriation 

Bill, 

McCumber   bill   attached   to, 
aa  "  rider,"  3 
American  Commission, 

appointment  of,  xiv 

report    of,    opposes    Govern- 
ment aid,   179 
Amortization   payments, 

advantages  of,  29-31 

definition  of,  29 

enable  persons  of  small 
means  to  acquire  farm 
home,  31 

general  discussion  of,  29-31 

in  European  institutions,  not 
less  than  one-half  of  one 
per  cent,  per  annum,  30 

necessary  for  long-time 
loans,  31 

stimulate    thrift,    31 

encourages     systematic     sav- 
ing,  31 
Appendix  "A,"  259-273 
Argentine, 

land-credit     institutions     of, 
242 
Assessed     valuation     of     prop- 
erty in  U.  S.,   18 
Augsbin,  Dr.  M., 

statement     of,      relative     to 
joint-stock  mortgage  banks 
of  Germany,  61 
Australia, 

aid  to  land-credit  institu- 
tions, 242 

maximum     length     of     long- 
time   loans    of    her    land- 
credit  institutions,  22 
Austria, 

character  of  her  land-credit 
institutions,  56-58 

chief  land-credit  institutions 
of,  not  profit-sharing,  56 

land-credit  institutions  mod- 
eled after  the  Landschaft- 
en,    56 


Austria  —  continued 

maximum  length  of  long- 
time loans  by  her  land- 
credit  institutions,  22 

use  of  fimds  or  credit  of,  to 
aid      land-credit      institu- 
tions, 240' 
Austria-Hungary, 

use  of  funds  and  credit  of, 
to  aid  land-credit  institu- 
tions, 240 

Back-to-the-farm  movement,  10 
Bailey,  Hon.  Warren  Worth, 

excerpt  from   speech   of,    186 
Banco  Hipotecario   (Uruguay), 

242 
Banks, 

are  credit  institutions,  11 
capital,    surplus,    and    undi- 
vided  profits  of,   11 
capital  of,  invested  in  state, 

county,       and      municipal 

bonds,  15 
commercial,     cannot     supply 

land-credit,    21 
compete  to  secure  depositors, 

101,   102 
country  crowded  with,  101 
discrimination  of,  against  the 

country,   11,   12,   13,   15 
do    not   compete   in    interest 

charges,  101,  102 
have  increased  rapidly,   101 
investments    of,    in    railway 

securities,   14 
loans  of,  on  farm  lands,  12 
loans  of,  on  real  estate  other 

than   farm   lands,   12 
loans  of,  to  corporations,  13, 

14 
loans   of,    without   collateral 

security,    15 
loans  and  investments  of,  11 
number  of,   11 
percentage    of    loans    of,    on 

farm  lands,   13,   14 
percentage  of   loans   and   in- 
vestments    of,     in     stocks 

and  bonds,   14 


Index 


279 


Banks  —  continued 

profit-making  institutions,  11 

resources  of,  11 

short-time  loans  of,  to  farm- 
ers,   12 

total  loans  of,  to  farmers, 
12 

total      loans     of,     to     non- 
farmers,    12 
Banking    and    Currency    Com- 
mittees, 

see  Committee  on'  Banking 
and  Currency,  of  Senate 
and   House 

appoint  svib-committees  on 
rural  credits,  xv 

of  Senate,  reports  favorably, 
S.  5542,  3 

sub-committees       of,       agree 
upon  land  credit  bill,  xv,  3 
Barton,  Hon.  Silas  R., 

excerpt  from  speech  of,  196 
Bathrick,  Hon.   Ellsworth,  R., 

excerpt  from  speech  of,   181 
Bavarian    Agricultural    Bank, 

administration  charges  of, 
96 

capital  and  reserves  of,  114 

interest  rates  of,   149,   152 
Bavarian   Commercial   Banlc, 

administration     charges     of, 
96,  97 
Bavarian  Union  Bank, 

administration     charges     of, 
96,   97 

capital  and  reserves  of,  114 
Bavarian     Mortgage     and    Ex- 
change Bank, 

administration  charges  of, 
96,  97 

capital  stock  and  reserve  ac- 
count of,  113,  114 
Bonds   and   debentures,   26-29 

are  liquid  securities,  26 

are  farm  mortgages,  modified 
In  form,  28,"  154 

capital  of  loan  institutions 
final  security  for,  28 

difference  between,  27 

Federal  government  must  see 


Bonds  —  continued 

that  they  are  made  secure, 
33 

farmer  interested  in  safety 
of,  33 

Federal  government,  if  neces- 
sary, should  use  either  its 
credit  or  cash  to  secure  the 
payment  of,   245 

general  discussion  of,  26-29 

importance  of,  in  land-credit 
systems,  26 

interest  on,  determines  in- 
terest on.  farm  mortgages 
and  through  their  sale 
land-credit  institutions  se- 
cure funds  for  loans  on 
mortgages,   153 

interest  rates  on,  of  Euro- 
pean land  credit  institu- 
tions,  154-160 

interest  on,  of  Silesian 
Landschaft,   154 

Landscliaften  issue  deben- 
tures, 27 

may  be  made  secure  by  un- 
limited liability  of  bor- 
rowers, 245,  by  govern- 
ment guaranty,  246-249, 
by  reserve,  guaranty  or 
insurance  fund,  249 

make  farm  mortgage  liquid 
and  easily  negotiable,   26 

methods  used  to  make  them 
absolutely  secure,  245 

must  not  exceed  outstanding 
mortgages,  27 

must  be  redeemed  at  par,  29 

must  be  made  absolutely  se- 
cure, 162 

necessity  of  absolute  security 
of,  31-34 

of  private  banks,  not  guar- 
anteed by  European  gov- 
ernments, 33 

owners  of,  have  prior  lien 
on  mortgages  to  secure 
payment  of,  28 

payable  at  no  fixed  time,  28, 
31 


:8o 


Ind 


ex 


Bonds  —  continued 

payment  of,  guaranteed  by 
many  European  countries, 
33 

payable  to  bearer,  29 

precaution  exercised  by 
European  land  credit  in- 
stitutions, to  insure  their 
safety,  32 

principle  of  unlimited  liabil- 
ity of  borrowers  not  essen- 
tial to  safety  of,  33 

primarily  debt  of  borrowers, 
30 

provisions  of  the  Commission 
Bill  which  recognize  uni- 
form value  of  all  farm 
mortgage   bonds,    103-167 

purchase  of,  by  government, 
not  best  method  of  govern- 
ment aid,  232 

purchase  of  by  government, 
will  not  insure  adequate 
credit  or  a  low  rate  of  in- 
terest, 234,  235 

reserve  or  guaranty  fund  set 
aside  to  insure  payment 
of,  27 

retirement  of,  determined  by 
drawing,  29 

security  of,  affects  interest 
rates,  32 

secured  by  mortgages  de- 
posited in  trust,  27 

should  not  be  vitiated  by 
character  of  institution  is- 
suing them,   33 

their  sale  the  source  of 
credit  of  land-credit  in- 
stitutions,   31 

use  of  government   funds  or 
credit,  to  secure,   163 
Browne,  Hon.  Edward  E., 

excerpt  from  speech  of,  200 
Bulkley,   Hon.   Robert  J., 

excerpt      from      speech      of, 
188 
Bulkley-Hollis  Bill, 

same  as  Sub-committee  bill, 

XV 


Bulkley,  Hon.  Robert  J.,  a  Rep- 
resentative  from    Ohio 

excerpt  from  speech  on  gov- 
ernment aid,   180,   181 

introduces    Sub-Committee 
bill,  XV 

introduces    H.    R.    21,603, 
III 

proposes  amendment,   176 

speech    in    House    on    rural 
credits,   174 
Bureau  of  Census 

bulletin   on   public   indebted- 
ness, 17 
Bureau  of  farm  land  banks, 

under    the    Commission    bill, 
35 


Campbell,  Hon.  Philip  P., 

excerpt  from  speech  of,  187 
Candler,   Jr.,   Hon.    Ezekiel    S., 

excerpt  from  speech  of,  198 
Canada, 

delegates  from,  on  the  Amer- 
ican Commission,  xiv 
Capital  stock, 

amount  of,  district  banks 
should  have  under  Sub- 
committee and  Senate  com- 
mittee bills,  78 

amount  of,  should  not  con- 
trol the  amount  of  mort- 
gage-bonds a  private  land 
bank  issues,   78-82 

minimum  amount  of,  land 
banks  should  have  to  pro- 
vide credit  for  agriculture, 
78 

of  Federal  reserve  banks,  78 

of  land  banks  should  not  be 
used  to  meet  losses,  79 

of  bank  generally  stationary, 
80 

of    land    banks    under    Com- 
mission,        Sub-committee, 
and       Senate      Committee 
Bills,   110,   111,    112 
Caraway,  Hon.  T.  H., 

excerpt  from  speech  of,  181 


I 


Index 


281 


Centralization    of    bond-issuing 
power, 

adopted  by  Hungarian  land- 
credit  institutions,   124 

advantages  of,  illustrated  by 
success  of  the  Prussian 
Central  Land-Credit  Joint 
Stock  Company,  125,  126, 
127 

advantages  of,  in  general, 
127,   128 

Central  Landschaft,  evidence 
of  necessity  of,  123 

Howard  Bill  favors,  121,  122 

insures  uniformity  of  inter- 
est rate  and  lower  interest 
charges,   129 

lessens  competition  in  sale  of 
mortgage  bonds,   131,   132 

report  of  United  States  com- 
mission opposes,  122 

Sub-Committee  and  Senate 
Committee  Bills  recognize 
principle   of,    121 

will  aid  in  standardization  of 
business  methods,  mort- 
gages, bonds,  and  appraise- 
ments,  121,   133,   137 

will  assist  in  securing  access 
to  foreign   capital,   130 

will  contribute  to  security  of 
farm  mortgage  bonds,  130, 
131 

will  give  investors  confidence 
and  safety  in  mortgage 
bonds,    137 

will  reduce  cost  of  adminis- 
tration, 129,   130 
Chilean    State   Land   Mortgage 
Bank,    59,    242 

a   public,    non-profit   sharing 
institution,  59 
Chile,  Republic  of, 

Chilean  State  Land  Mort- 
gage Bank  of,   242 

land-credit  institutions  of, 
59 

maximum  length  of  long- 
time loans  by  credit  insti- 
tutions of,  22 


Cooperative  agricultural  socie- 
ties, 

benefits  of,  to  farmers,  107 

form  of  monopoly,  107 

in  a  degree  eliminate  compe- 
tition among  farmers,  107, 
108 

in  United  States,  107 

number   in  Germany,   107 
Committees    on     Banking    and 
Currency, 

appoint   sub-committees,   3 

Commission  Bill  referred  to, 
3 

of   Senate,   report   substitute 
for      Sub'Committee     Bill, 
xvi 
Commission,  U.  S., 

Congress  authorizes  Presi- 
dent to  appoint,  xiv,  3 

see  American   Commission 

see    United    States    Commis- 
sion. 
Commissioner     of     farm     land 
banks, 

xmder  Commission  Bill,  35 
Conunission  Bill, 

administration  charges  au- 
thorized  under,   89-93 

authorizes  multiplicity  of 
bond-issuing  banks,  120, 
121 

creates  private,  profit-shar- 
ing banks,  4,  5 

does  not  insure  adequate 
farm  credit,  5,  72,   73 

does  not  provide  ample  re- 
serve fund,   109-119 

fundamentally  does  not  difi'er 
from  the  Sub-Committee 
and  Senate  Committee 
bills,  4 

general  outline  of  provisions 
in,  35-37 

how  it  diff'ers  from  the  Sub- 
Committee  Bill,  and  the 
Senate  Committee  Bill,  42- 
45 

how  it  agrees  with  the  Sub- 
Conwnittee    Bill,    and    the 


282 


Index 


Commission  Bill  —  continued 
Senate  Committee  Bill,  45- 
47 

limits  amount  of  bonds  banks 
may  issue,  73 

permits  excessive  administra- 
tion charges,  91-93 

proposes  to  establish  a  sys- 
tem of  private  banks,  49 

provisions  of,  relating  to  use 
of  capital,  surplus  and  de- 
posits of  land  banks,   110 

referred  to  Banking  and  Cur- 
rency Committee,  3 

same  as  Fletcher-Moss  Bill, 
or  Moss-Fletcher  Bill,  xv 

smallness  of  capital  required 
of  land  banks  under,  73, 
77 

uncertain  as  to  number  of 
banks  that  will  be  organ- 
ized under,  72,  73 
Commission,  Sub-Committee, 
and  Senate  Committee 
Bills, 

general  discussion  of,  5-7, 
35-48 

may  not  furnish  adequate 
credit,  70 

provisions  in,  relative  to  in- 
vestment    of     capital     of 
land  banks,  110,  111 
Committee  on  Agriculture, 

McCumber  amendment 

referred   to,   3 

report  of,  substituted  Senate 
Committee  bill  for  Mc- 
Cumber amendment,  3 

report  of,  adopted  by  House, 
3 
"  Competitive "      land      banks, 
100-108 

cannot  compete  in  loans  with 
banks  of  other  States,  104 

cannot  loan  outside  of  State 
where  located,  103 

general  discussion  of,  100- 
108 

investors,  not  farmer,  would 
be  benefited  by,  106 


"  Competitive  "    land    banks  — 
continued 

limited  in  area  in  which 
loans  may  be  made,  103 

may  have  exclusive  field  for 
operation,   103 

number  of,  organized  under 
Commission  Bill  may  not 
be  sufficient  to  make  ef- 
fective competition,   102 

report  of  United  States  Com.- 
mission  relative  to,   100 

would  bring  farmers  in  com- 
petition with  each  other  in 
sale  of  their  securities,  104 

would  compete  with  each 
other  in  selling  bonds,  104 

will  not  compete  in  interest 
charges,   101-104 
Competition, 

among  land  banks  cannot  be 
relied  upon  to  insure  low 
rates  of  interest,  101 

decline  of,  in  modern  busi- 
ness, 103 

in  sale  of  mortgage  bonds  fa- 
vors investors,  not  farm- 
ers, 107 

not  now  and  will  not  be  an 
important  factor  in  fixing 
interest  rates,  103 
Comptroller  of  the   Currency, 

report  of,  10,  11,  12,  13,  14 
Conference  committee, 

considers  land-credit  bill,  3 

recommends  appointment  of 
joint-committee  to  prepare 
rural  credit  bill,  3 

report  of,  3 
Connolly,  Hon.  Maurice, 

excerpt  from  speech  of,  205 
Congress  of  the  United  States, 

authorizes  appointment  of 
Commission,  xiv 

history  of  land  credit  legis- 
lation in,  XV 

power  of,  to  exempt  land- 
banks,  mortgages  and 
bonds  from  State  and  local 
taxation,  259-273 


Index 


283 


Corporations, 

annual  taxable  income  of,  13 

capital  stock  and  bonds  of, 
13 

stocks  of,  listed  on  New  York 
Exchange,   13 
Costa  Rica, 

land  credit  bank  of,  242 
Counties,  Cities,  Towns,  etc., 

increase    of    indebtedness    of, 
17 
Country  Life  Commission, 

report  of,  xiv 
Credit  Foncier, 

absorbed  other  land  credit  in- 
stitutions of   France,   138 

administration  charges  of, 
93,  98 

capital  stock  of,  77,  109 

decree  relative  to,  138 

dividends  of,  not  limited,  76 

guaranty  fund  of,   109,   113 

Interest  charge  of,   147 

limitation  of  interest  rates, 
charged  by,   98 

may  issue  debentures  before 
loans  are  made,  27 

obligatory  reserves  required 
of,  76  ■ 

profit-sharing,  but  semi-pub- 
lic in  character,  56 
Credit  Union  of  Wiirttemberg, 

administration     charges     of, 
97 
Credit, 

an  instrument  of  productive 
power,  xii,  9 

factor  in  growth  of  towns 
and  cities,   10,   12 

lack  of,  tax  on  farmers,  xii 

land,  cannot  be  supplied  by 
individuals  or  commercial 
banks,  21 

loss  to  agriculture  for  lack 
of,  9 

monopolized  by  commerce,  9 

ranks  with  steam  and  elec- 
tricity, 9 

stimulated  growth  of  cities, 
9,  10 


Credit  —  continued 

utilized  to  expand  commerce, 
etc.,   10 

wliat    it    means    to    agricul- 
ture, 9 
Crisis    in    land    credit    legisla- 
tion,   1-8 

importance  of  settling  right, 
2 

influence  will  extend  to  other 
industries,   2 

involves  prosperity  of  farm- 
ers, 1 

legislative  events,  which 
lead  to,  3 

not  a  creature  of  the  imagi- 
nation, 2 

will  determine  attitude  of 
government  toward  farm- 
ers,  1,  2 


Debentures,  26-29 

see  Bonds  and  Debentures 
Debts, 

of  state,  national,  and  local 
governments,    17-19 
Democratic  Party, 

platform       declaration       on 
rural  credits,  xiv 
Denmark, 

aid    to    land    credit    institu- 
tions,  241 
Department  of  Agriculture, 
estimate     of     farm-mortgage 

indebtedness  by,  71 
estimate    of    total    indebted- 
ness of  farmers  by,  71 
value    of    agricultural    prod- 
ucts estimated  by,  xi 
Department  of  Commerce, 
bulletin    on    public   indebted- 
ness,' 17 
De  Szill,  Coloman, 

statement  of,  relative  to  ad- 
ministration expenses  of 
Hungarian  land  credit  in- 
stitutions, 96 
Discrimination  against  farm- 
ers,   9-19 


284 


Index 


Dividends, 

limitation  of,  not  best  way 
to  control  interest  rates, 
51,  52,  53 

limitation  of,  in  land  banks 
will  deter  capital  from  in- 
vestment in  capital  stock 
of  banks,   74,   75 

of  Credit  Foncier,  not  lim- 
ited, 76 

of  national  banks,  75 

of     Prussian     Central     Land 
Mortgage     Company,     not 
limited,  76 
Doolittle,   Hon.   Dudley, 

excerpt  from  speech  of,  182 
Dutterwiller,   Prof., 

statement  of,  relative  to  in- 
terest rate  of  land  credit 
institutions  of  Switzer- 
land, 152 

Eagle,  Hon.  Joe  H., 

excerpt  from  speech  of,  185 
Economy      of      administration, 
87-89 

necessary  for  success  of  land 
credit  institutions  of  U.  S., 
87 
Egypt, 

agricultural  bank  of,  60,  241 

aid  to  land  credit,  241 

National   bank  of,   60,  241 
European    land    credit    institu- 
tions,   20-34 

authorized  by  law,  20,  21,  22 

general  discussion  of  the 
type  or  character  of,  53-59 

Hungarian  Boden-Credit  In- 
stitute, a  public  credit  in- 
stitution,   58 

issue  bonds  and  debentures, 
20,  26-29 

Landschaften  in  Germany, 
54,  55 

largely  public  or  sami-public 
corporations  and  non-prof- 
it-sharing,  53 

make  bonds  and  debentures 
secure,  20,  31-34 


European    land    credit    institu- 
tions —  continued 

make  long-time  loans,  20,  22- 
26 

Mortgage  Bank  of  the  King- 
dom of  Norway,  a  public 
institution,  59 

National  Land  Credit  Insti- 
tute for  small  landowners 
of  Hungary,  public  in  its 
character,   58 

Provincial  Mortgage  Insti- 
tute for  Lower  Austria, 
not  organized  for  gain,  57 

require  amortization  pay- 
ments, 20,  29-31 

savings  banks  in  Germany,  55 

Swedish  General  Mortgage 
Bank,  a  public  institution, 
58 

the  Credit  Foncier  of  France, 
56 
Expenditures, 

of  national,  state  and  local 
governments,  15-17 

Farms, 

amount     of     mortgages     on 

farms  of  the  U.   S.,  71 
constitute       one- fourth        of 

wealth,    13 
mortgage      indebtedness     of, 

occupied  by  owners,  70 
number   occupied  by  owners, 

70 
number  of  persons  employed 
on,  xi 
Farm  property, 

value  of,  in  U.  S.,  14 
Farm   credit, 

demand    for,    in    the    United 

States,  71,  72 
object  of,  to  promote  national 
policy,  xiii 
Farm  home-owners, 

long  term  mortgages  will  in- 
crease number  of,  25,  26 
Farm  mortgage  bonds, 

things  which  may  affect  the 
sale  of,  82-86 


Index 


285 


Farm  mortgages, 

amount    of     in     the     United 
States,  70,  71 
Farmers'    Union, 

actions  of,  relative  to  our 
farm-credit  institutions,  68 

favors     national     land-credit 
legislation,  211 
Farmers, 

advantages  to,  from  central- 
ization of  land  credit  insti- 
tutions, 127 

attitude  toward  public  or 
semi-public  land  credit  in- 
stitutions, 67-69 

cannot  secure  low  rate  of 
interest  unless  mortgage 
bonds  sell  at  low  rate  of 
interest,  106 

character  of  credit  hereto- 
fore available  to,  of  U.  S., 
50 

discrimination  against,  in 
granting  credit,  9-19 

debt  of,  more  than  the  com- 
bined debt  of  Federal  gov- 
ernment ( interest-bear- 
ing), state,  county,  city 
and  all  local  governments, 
99 

do  not  reap  any  benefit  from 
competition  in  sale  of 
bonds,  106 

entitled  to  impartial  inter- 
mediary to  act  between 
them  and  investors,  51 

future  need  of,  for  credit,  71 

mortgage  indelatedness  of,  70, 
71 

multiplicity  of  bond-issuing 
land  banks  unfavorable  to, 
128,  129 

multiplicity  of  bond-issuing 
banks  will  work  to  disad- 
vantage of,   131,  132 

must  compete  with  commer- 
cial and  other  interests  for 
credit,  133 

number  of,  in  United  States, 
1,   2 


Farmers  —  continued 
number  of,  who  are  tenants,  25 

of  U.  S.  have  made  little 
progress  in  collective  buy- 
ing  and   selling,   49 

pay  all  expenses  of  land- 
credit  institutions,  87,  88 

share  of  public  indebtedness, 
15,  18 

should  pay  what  credit  costs, 
51 

should  not  compete  against 
each  other,  133 

should  not  be  required 
through  interest  payments 
to  contribute  to  support  of 
Federal  government,  116, 
117 

should  oppose  small  land- 
credit  banks  as  the  instru- 
nients  to  secure  their 
credit,  138 

so-called  competitive  land 
banks  would  bring  them  in 
competition  with  each 
other  in  sale  of  their  se- 
curities,  104,    105 

suspicious  of  middlemen,  49 

total  indebtedness  of,  16,  18, 
70,  71 

taxes  paid  by,  18,  19 

vital  to  farmers  that  land 
credit  institutions  shall  be 
capable  of  economical  ad- 
ministration,  88 

wealth  owned  by,  14 

wall  profit  by  eliminating 
competition  in  sale  of 
mortgage  bonds,  108 

would  pay  excessive  adminis- 
tration charges  under  the 
Commission,  Sub-commit- 
tee and  Senate  committee 
bills,  93 
Farm  Loan  Associations, 

see  national  farm  loan  asso- 
ciations 
Federal  Farm  Loan  Board, 

created  under  the  Senate 
Committee  Bill,  40 


286 


Ind 


ex 


Federal    Farm    Loan    Board  — 
continued 

general  provisions  relative 
thereto  under  the  Senate 
Committee  bill,  40 

power  given,  to  regulate  in- 
terest rates,  41,  141 
Federal  Land  Bank, 

dividends  of,  limited,  38 

exempt  from  taxation  imder 
Sub-Committee  Bill,  39 

exempt  from  taxation  under 
Senate  Committee  Bill,  41, 
42 

formation  of,  authorized  un- 
der the  Sub-Committee 
Bill,  38 

investment  of  capital  of,  in 
government  bonds,  111 

investment  of  capital  of,  in 
real  estate  mortgages,   110 

provisions  of  Sub-Committee 
Bill  authorizing  the  Secre- 
tary of  the  Treasury  to 
subscribe  to  the  capital 
stock  thereof,  39,  40 

provisions     relative     thereto 
under  the  Senate  Commit- 
tee Bill,  41,  42 
Federal   Reserve   Board, 

authorized  in  the  Sub-Com- 
mittee Bill  to  appoint 
Farm  Loan  commissioner, 
37 

authorized  in  Sub-Committee 
Bill  to  divide  the  United 
States  into  twelve  districts 
in  which  Federal  Land 
Banks  shall  be  established, 
38 

power  given,  to  regulate  in- 
terest, 141 

under      Sub-Committee      bill 
authorized    to   review   and 
alter  interest  rates,  39,  141 
Federal  Reserve  Banks,  77,  78 

capital  required  of,   78 

chief  purpose  of,  to  serve 
commerce,  77 


Federal  Reserve  Banks  —  cont. 
national    banks    required    to 

furnish  capital  of,  78 
Secretary    of    Treasury    au- 
thorized   to    subscribe    to 
capital  stock  of,  78 
Federal  Reserve  Act, 

limits   dividends    of    Federal 

reserve  banks,  75 
provisions  in  relation  to  cap- 
ital    of     Federal     Reserve 
Banks,  78 
Federal  Farm  Bond  Banks, 
organization    authorized    im- 
der  Senate  Committee  Bill, 
42 
provisions     relative     to,     in 
Senate  Committee  Bill,  42 
Ferris,  Hon.  Scott, 

excerpt  from  speech  of,  198 
Finland, 

maximum     length     of     long- 
time   loans    of    her    land 
credit  institutions,  22 
Fisheries,  forestry  and  mining, 
annual    products,    value    of, 
xii 
Fletcher,  Hon.  Duncan  U., 
introduces    Commission    Bill 
in  Senate,  xv 
Fletcher-Moss  Bill, 

referred  to   as  the   Commis- 
sion Bill,  XV 
Florence  (Italy)  Savings  Bank, 
151 
interest  rates  of,  151,  152 
Forestry,  fisheries  and  mining, 
value  of  annual  products  of, 
xii 
Foster,  Hon.  Martin  D., 

excerpt  from  speech  of,  201 
Fowler,  Hon.  H.  Robert, 

excerpt  from  speech  of,  190 
France, 

Credit     Foncier     of,     profit- 
sharing,    but    not    private 
institution,  56 
Credit     Foncier     chief    land- 
credit  institution  of,  77 


Index 


287 


France  —  continued 

maximum     length     of     long- 
time   loans    of    her     land 
credit  institutions,   22 
population  of,  77 
use  of  fmids  or  credit  of,  to 
aid  land  credit  institutions 
of,  239,  240 
Franz,  Robert, 

statement  of,  as  to  object  of 
joint-stock  mortgage  banks 
of  Germany,  61 
Frear,  Hon.  J.  A., 

excerpt  from  speech  of,  194 
Free  Homestead  Law, 
importance  of,  25 
signed  by  Lincoln,  25 
vetoed  by  one  President,  25 
Frederick  the  Great, 

founder  of  the  Landschaften, 
68 

Germany, 

area  of,  less  than  that  of 
Texas,  137 

character  of  her  land  credit 
institutions,  54-56 

interest  rates  of  savings 
banks  of,  147 

interest  rates  of  joint  stock 
mortgage  companies  of, 
147,  148 

interest  rates  of  Landschaft- 
en and  other  public  land 
credit  institutions  of,    148 

interest  rates  of  Prussian 
Central  Land  Credit  Com- 
pany of,   149 

interest  rate  of  Bavarian 
Agricultural  Bank  and  of 
State  Provincial  and  dis- 
trict mortgage  banks  of, 
149,  150 

land  credit  institutions  in, 
largely  public  or  semi- 
public  in  character,  54-50 

maximum  length  of  long- 
time loans  of  her  land 
credit  institutions,  22 

market  for  land  credit  insti- 


Germany  —  continued 

tutions  of,  largely  local, 
137 

reserve  funds  of  her  land 
improvement  and  provin- 
cial aid  banks,  114 

savings  banks  in,  ordinarily 
do  not  aim  at  profit,  55 

use  of  funds  or  credit  of,  to 
aid  land  credit,  237-239 
Goodwin,  Hon.  William  S., 

excerpt  from  speech  of,  206 
"  Government  Aid,"  172-255 

arguments  in  favor  of,  226- 
232 

by  legislation  and  supervi- 
sion, 211,  212 

by  making  farm-mortgage 
bonds  legal  investments 
for  trust  funds,  216-218 

excerpts  from  speeches  of 
Representatives  in  Con- 
gress in  debate  on  the 
"  McCumber  "  amendment, 
181-206 

form  of,  rendered  by  other 
nations:  Germanv,  237- 
239;  France,  239-240; 
Austria-Hungary,  240 ; 

Russia,  240;  Italy,  Swit- 
zerland, Denmark,  and 
Sweden,  240,  241;  Egypt, 
Japan,  Philip]3ine  Islands, 
Australian  States,  241, 
242 ;  Mexico,  Argentine, 
Chile,  Uruguay,  and  Costa 
Rica,  242 

Federal  Reserve  Act,  recog- 
nized  principle  of,  244 

general  statement  relative  to, 
172 

history  of  controversy  over, 
in   Congress,   173-177 

how  to  use  funds  or  credit 
of  the  Government  in,  244- 
255 

kind  of,  immaterial  if  effi- 
cient, 207-210 

provisions  in  Sub-Committee 
relative  to,  39-40 


288 


Index 


"  Government  Aid  " —  continued 

provisions  relative  to  in  Sen- 
ate Committee  Bill,  42 

sufficient,  must  be  rendered 
to  insure  payment  of  bonds 
of  land  credit  banks,  245 

sufficient,  should  be  rendered 
to  provide  agriculture  with 
a  low  rate  of  interest,  20(i- 
255 

through  management  or  con- 
trol, 212-215 

through  special  privileges, 
215-222 

through  extension  of  credit, 
222-225 

through  use  of  Government 
funds,  225-226 

through  purchase  of  farm 
mortgage  bonds,  not  best 
method  of,  232-244 

through  exclusive  use  of 
name  "national,"  216 

through  exemption  from  tax- 
ation, 218-222 

through  purchase  of  mort- 
gage bonds,  will  not  insure 
adequate  credit  or  low  rate 
of  interest,  234-236 

through  purchase  of  mort- 
gage bonds  not  supported 
by  experience  and  practice, 
236-244 

through  guaranty  of  farm 
mortgage  bonds,  24G-249 

through  contribution  to  re- 
serve, guaranty,  or  insur- 
ance fund,  249-255 

views  of  United  States  Com- 
mission, American  Com- 
mission, Sub-Committee  on 
rural  credits,  the  Senate 
Committee  and  Members  of 
Congress,  177-206 
Grange,  National, 

favors     national     land-credit 
legislation,   211 
Guaranty  fund, 

capital  should  not  be  re- 
garded as  part  of,  109. 


Guaranty  fimd  —  continued 
Credit  Foncier,  109 
see  reserve,  guaranty  or  in- 
surance fund 

Hayes,  Hon.  Everis  A., 

excerpt  from  speech  of,  185 
Heflin,  Hon.  J.  Thomas, 

excerpt  from  speech  of,  193 
Helegesen,  Hon.  Henry  T., 

excerpt  from  speech  of,  202 
Helvering,  Hon.  Guy  T., 

excerpt  from  speech  of,  196 
Henry,  Hon.  Robert  L., 

excerpt  from  speech  of,  193 
Herrick,  Hon.  Myron  T.,  viii 
author    of    "  rural    credits," 
viii 
Hill,  James  J., 

quotation     from     his     book, 
"  Highways    of    Progress," 
xiii 
History  of  land  credit  legisla- 
tion, XV 
Hollis  Bill,  Senate  7554, 

oflFered  as  amendment  to  S. 
5542,  xvi 
Hollis-Bulkley  Bill, 

same  as  Sub-Committee  Bill, 

XV 

Hollis,  Hon.  Henry  F., 

introduces        Sub-Committee 

Bill,  XV 
introduces  S.  7554,  xv 
Home-owTiing, 

importance  of,  25 
House  bills, 
Xo.  12,585,  XV 
No.  20,689,  XV 
No.  16,478,  XV 
No.  12,746,  121 
No.  21,603,  111 
Houston,  Secretary  of  Agricul- 
ture, 
statement    relative    to    Gov- 
ernment Aid  to  land  credit 
institutions,    173,    174 
Howard  Bill, 

creates    system    of    national 
farm  banks,  121,  122 


Index 


289 


Howard   Bill  —  continued 
provisions  of,  121,  122 
Howard,  Hon.  William  Schley, 
excerpt  from  speeches  of,  182, 
191 
Howard,  Representative, 

introduces  H.  R.   12,746,  121 
Hoyos,  Count, 

statement  of,  relative  to  re- 
serve or  gTiaranty  fund  of 
the  Hungarian  Land  Credit 
Institution,   115 
Hughes,   Hon.   Dudley  M., 

excerpt  from  speech  of,  189 
Hulings,  Hon.  Willis  J., 

excerpt  from  speech  of,  184 
Hmigarian  Boden-Credit  Insti- 
tute, 58 
amount  of  loans  of,  58 
a   public   institution,   58 
endowed  by  the  State,  240 
example  of  centralization   in 

bond-issuing  power,   124 
loans,  bonds,  and  capital  of, 
124 
Hungarian   Land   Credit  Insti- 
tution, 124 
centralization  of,  124 
endowment  of,  240 
interest  rates  of,  150,  151 
reserve  fund  of,  115 
Hungary, 

land    credit    institutions    of, 

240 
endowment  of  land  credit  in- 
stitution by,  240 

Inadequacy    of    Reserve    Fund, 

109-119 
Interest,  139-171 

"  Competitive "     land     banks 

will     not     be     controlling 

force  in  reduction  of,  101 
diversity    of    interest    rates, 

160 
exemption  of  mortgages  and 

bonds    from    taxation    will 

reduce  rates  of,  139 
general  statement  relative  to, 

139 


-Interest  —  continued 

maximum  rate  of,  may  be 
fixed  by   statute,   142-143 

provisions  in  the  Commis- 
sion, Sub-Committee,  and 
Senate  Committee  Bills 
relative  to,  140-142 

provisions  in  the  Commis- 
sion Bill  relative  to,   140 

provisions  in  the  Sub-Com- 
mittee Bill  relative  to,  140, 
141 

provisions  in  Senate  Commit- 
tee Bill  relative  to,  141, 
142 

provisions  of  commission  bill 
will  not  be  effective  in  re- 
ducing rate  of,  143,  144 

provisions  of  the  "  officially 
endorsed  "  bills  relative  to, 
will  not  encourage  land 
banks  to  give  farmers  low 
rate  of  interest,  145 

purchase  of  farm  mortgage 
bonds  by  federal  govern- 
ment will  not  insure  low 
rate  of,  234,  236 

rates  of,  charged  by  land 
credit  institutions  in  other 
countries,  147-153 

rates  on  mortgage  bonds  in 
other    coimtries,    153-160 

rates  of,  charged  by  German 
savings  banks,  147;  Credit 
Foncier,  147 ;  Joint-stock 
Mortgage  Company,  148 ; 
Landschaften,  148;  Prus- 
sian Central  Land  Credit 
Company,  149;  State  and 
Provincial  Mortgage  Credit 
Banks  of  Germany,  149; 
The  Bavarian  Agricultural 
Bank,  149;  Provincial 
Mortgage  Institute  of 
Lower  Austria,  150;  Hun- 
garian Land  Credit  Insti- 
tution, 150,  151;  Florence 
( Italy )  Savings  Bank, 
151 ;  Wiirttemberg  Credit 
Union,  152;  Nassau  Mort- 


290 


Index 


Interest  —  continued 

gage  and  Savings  Bank, 
152;  Mortgage  Bank  of 
Eindhoven  (Holland),  153; 
Bank  of  Zurich  (Switzer- 
land), 152 

reduction  of,  main  object  of 
land  credit  legislation,  139 

report  of  U.  S.  Commission 
favors  diversity  of  rates, 
160 

rates  of,  should  be  uniform 
throughout  the  Union,  160 
Indebtedness, 

of  national,  state,  and  local 
governments,  15-19 

growth  of,  17 
Insurance  fund,  249-255 

see  reserve,   guaranty  or  in- 
surance fund 
Ireland, 

maximum     length     of     long- 
time loans   of   land  credit 
institutions  of,  22 
Italy, 

aid  to  land  credit  institu- 
tions, 240 

land  credit  institutions  of, 
largely  non-profit-sharing, 
58 

maximum  length  of  long- 
time loans  of  her  land 
credit  institutions,  22 

reserves  of  savings  banks  of, 
114 

Japan, 

aid  rendered  land  credit  in- 
stitutions, 242 

Kwango  Ginko  bank,  a  cen- 
tral institution,  125 

land  credit  institutions  of, 
124,  125 

maximum  length  of  long- 
time loans  of  her  land 
credit  institutions,  22 

Noko   Ginko   banks   of,   60 
Joint-Committee  on  rural  cred- 
its, 

appointment  of,  3,  177 


Joint  stock  mortgage  banks  of 

Germany,  61,  62 
administration  costs  thereof, 

94,  98 
follows    closely    methods    of 

non-profit-sharing      banks, 

62 
interest  rates  of,  147 
not    primarily     designed    to 

meet  needs  of  agricultural 

credit,  55 
number  of,  61 
percentage  of  loans  on  farm 

lands,  61 
statement  of  Dr.  M.  Augsbin 

relative  to,  61,  62 
statement    of    Robert    Franz 

relative  thereto,  61 

Kapp-Konigsberg,  Dr., 

testimony  on  character  of  the 
landschaften,   55 
Keating,  Hon.  Edward, 

excerpt  from  speech  of,  190 
Kingkaid,  Hon.  Moses  P., 

excerpt  from  speech  of,  201 
Knox,  Secretary, 

investigates  systems  of  Eu- 
ropean farm  credit,  xvi 

Land  credit  institutions, 

arguments  in  favor  of  public 
or  semi-public  and  non- 
profit-sharing, 49 

attitude  of  farmer  toward 
the,  of  the  United  States, 
67-69 

efforts  of  European  govern- 
ments to  safeguard  securi- 
ties of,  32 

for  the  United  States  should 
be  public  or  semi-public 
and  non-profit-sharing,  49 

for  the  United  States  must 
be  capable  of  economical 
administration,    87-99 

fundamental  principles  of 
European,  20-34 

intermediary  between  bor- 
rowers and  investors,  30 


Index 


291 


Land  credit  institutions  —  cojt- 
tinued 

in  United  States,  bonds  and 
debentures  of,  must  be 
made  secure,   33 

in  Europe  largely  public  or 
semi-public,  53 

in  Germany,  54-56 

in  France,  56 

in  Austria,  56-57 

in  Hungary,  58 

in  Sweden,  58 

in  Norway,  58,  59 

in  Chile,  59 

in  Egypt,  60 

in  Japan,  60 

in  Western  Australia,  60 

in  New  South  Wales,  60 

in  Queensland,  61 

joint-stock  mortgage  compa- 
nies of  Germany  not  de- 
signed to  meet  the  needs 
of  farm  credit,  61,  62 

limitation  of  dividends  of 
profit-sharing  will  deter  in- 
vestment of  money  in  capi- 
tal stock  of,  74,  75 

of  Europe  generally  not  ex- 
empt from  taxation,  219- 
222 

must  be  authorized  by  law, 
20,  21 

public  or  semi-public  will  in- 
sure cheaper  credit,  65- 
67 

reasons  why,  of  U.  S.  should 
not  be  purely  private 
banks,  62-69 

states  free  to  organize,   161 

supervision  of,  21,  22 

type   of,   for    United   States, 
49 
Land     Improvement     Annuity 
Banks  of  Germany, 

interest  rates  of,  147 
Land  credit  legislation, 

history  of,  in  Congress,   xv, 
3,  173 
Land   Credit   Bank   of   Geneva 
(Switzerland),  241 


Landschaften, 

Austria's  land-credit  institu- 
tions modeled  after,  56 

business  not  conducted  for 
gain,  55 

central  landschaft  organized 
in  Germany,  123 

character  of,  54,  55 

debentures  of,  correspond  in 
ainoimt  with  mortgages 
held,  80 

foimded  by  Frederick  the 
Great,  68 

have  no  capital  stock,  80 

make  loans  and  issue  bonds 
indefinitely,    80 

no  profits  of,  have  gone  to 
make  dividends  for  share- 
holders, 69 

object  to  render  unselfish 
service  to  farmers,  69 

object  of  central  landschaft, 
123,   124 

why  central  organization  not 
fully  successful,   123,    124 
Landschaft  of  Saxony, 

administration  charges  of,  98 
Lever,  Hon.  Asbury  F., 

excerpt  from  speech  of,  188 
Levy,  Hon.  Jefl'erson  M., 

excerpt  from  speech  of,  189 
Lincoln,  Abraham, 

signed   Free  Homestead  law, 
25 
Linthicum,  Hon.  J.  Charles, 

excerpt  from  speech  of,  204 
Long-time  loans,  22-26 

advantages  of,  to  borrower, 
22-26 

commercial  banks  should 
support,  25 

enable  farmer  to  reduce  per- 
sonal indebtedness,  24 

factor  in  social  uplift,  23 

in  France,  22 

in  Germany,  22 

in  Ireland,  22 

in  Austria,  22 

in  Sweden,  22 

in  Russia,  22 


292 


Jnd 


lionf^-iimi'    liiiiiiH  —  vonlinuvd 
in    Aimli'iiliu,  2'2 
in  .ill  I  Dili,  '12 
ill)  Swil/cilaiid,  22 
ill   Kiily,  'V.J 
in    New   /('IiIiukI,  ^I'Z 
in  Chile,  22 
in    I'Miiliind,  22 
ill    I'nili'd   Siiit.cH,  22 
iiumn'  lirlliT    rmiiiin;^,   2.1 
iiihLc    lirlliT    cili/.riiH    of    i)or- 

rowriH,  2H 
|)i'(il«'('i,    I'lU'iihT    ri'iMii    iiiihlor 

(iiiii',   '.i.l 

Miiiiiiriictiiriii^, 

iicccHH  Id  Hoiiici'rt  of  cn-dil,,  \'.\ 
C'oncciiiH     luifs'fly     ouiird     liy 

ooi'|><iraU(iiiH,    I 'I 
iiiiiiiImt    iif    iMTMdim    rn(/ii;.MMl 

ill,    xi 


JVI 
M 


ill,    xi 
/Iii|><'H,  I  Inn.  ('nil   I']., 

cxccriiL    iriini   h|i('(m'Ii   oI',    11)2 
/Icduiiilirr,    llnii     I'oitcr   .1., 
Iiill    inl  I'lidiii't'd    liy,   pliici'd   iiH 
"  rider  "     on      ii)i;i  i(  nil  nrul 
ii|i|ir<i|)riiil  ion    liill,    .'t 
MeiiUiij^liliii,   lion.  .liiineH  ('., 

OXCerpl.    I'idiii    H|ieeeli    (if,    I  Hit 
Meeliiinieiil   piiiHiiilH  mid   iiiiiiiii 
fuel  III  iii;% 
iiiiinlier    of     perHoiiH    ell^ll^ed 
in,  \1 
Mexico, 

doi'H    nol.    |iiiri'litiHe    IioiiiIm    of 
her   liiiid    ImnkM,  212 
Mining;,    foreHJiy    iiiid    HHJierieH, 
viiliie  of  iiiiniiii!   titddiielM,  \ii 
Mor4^ii^'(<     jtiinlv    ol     I'liiidhovi  n 
(llolliiiid), 
en|)iliil     mid     inleiTHl.    ehmj^e 
of,   if.:i 


MurtffiiKe       ManU  of       Itn  no 

(Hwilaerluiid),  211 

lVI()riKa).(e       Itaiik  of       Vaiid 

(S\vil./.eilnnd),  211 

M 

M 


ivi()n|(a).(e  Kaiik  ol  vaim 
(S\vil./.eilnnd),    211 

Moil.^!i;a/,:e  llmik  of  St.  (Jail 
(Swiizerimid),    211 

lortgane  hank  of  Kiii/'.dnin  of 
Denmark,   241 


CX 

Mori^a^e   Hmik  of  Kingdom  of 

Norway,    M) 
Alorf^aj^'c  IioikIm, 

unioiinl.  of,  iHHiied  liy  Imid 
limik  Mlioiild  iinj.  I)(>  eon- 
li'olh'd  liy  nmonnt.  of  eiipi- 
ial  Hloeiv"  of  liaiik.  7S  H2 

capital  of  hank  Hlionid  not 
lie  ref^arded  aH  Heciirity  for, 
71) 

llnaneial  eoiidilioiiH,  eharae- 
ler  ami  loealion  of  iiiHli- 
tiil.ioii  iHHiiiii^  Ihem,  and 
eompefilion  with  oilier  Hc- 
cnritieH,  may  alVeel,  Hale  of, 
H2   HI 

generally  liiiid  ereilit.  iiiHtitil- 
t'ioiiH  are  prohiliited  fniiii 
iHHiiiiifj  lioiidK  in  execHH  of 
iiiort,\'a|,'eH  litdd  aa  Heeiirity 
(heiefor,  7.S 

iiiorl,j,'age8  l)a«ic  Hecurity  for, 
71) 

of  land  liankH,  hIioiiM  n«l,  ex- 
ceed miHiiiiil.  id°  mort;.;a;;eH 
de|)OHili'd  liy  iianlvH  iiH  He- 
curity   therefor,   7H 

thini^H    which    iilVeet    hiiIc    «if, 
H2-Htl 
Moore,   I  Ion.  <l.   I  Inmpton, 

excerpt,   from   npccch   of,    IDI 
MoHH,    Hon.    liiiiph    W., 

excerpt,        from        Hpeech        of, 
lill) 
MoHH  l''h'l(her    Mill. 

referred     to     iih     ('omminHion 
I'.ill.    \\ 
MoMH,    lion.    K'alpli    ,\., 

infrodiiceH  (JomniiHHioii  W\\\ 
in   the    lloiiHc,   \v 

Hpi h     in     lloiiHc     on     ninil 

cnditH,    174 
Multiplicity      of      hond  inHiiin^ 
hiinkH,'  121)    i:i7 

alVcclH  Hcciirity  u1  iiiortf^iiKO 
hondH.    I  III) 

ant  hoi'i/ed  liy  ( 'ommiHHion 
Itill,  SiihOommiMi'c  Kill, 
mid  Senate  comtnillee  Hill, 
121) 


Index 


293 


MiiUiplicity — continued 

(•xpcriciu'c  of  otlicr  rounirics, 

rt'liitivc   to,    Vl'A 
goucriil  stiitiMiKviit  relative  to, 

120 
iiieniiH   luni-iinironiiil y    ol    in- 

terewt  rniv^,    il!S,    l'J!» 
nieaiis      hiek       of       liiiiuieinl 

Htreiifjith      in     lioiui-iHHuiii;:^ 

instiUiiioii,    i:$7,    l:5S 
pre\('iiiK     sliimliii'di/.jiiion     of 

busiTU>SM      iiietluxls,      iiuirt- 

^ii.nes,  1)oik1h,  ami  a|)|)iuiH»'- 

iiieiits,    1.13-1. "17 
pnlH    fanners    in    eoin|)erii  ion 

in   tlie  sale  of  ilieir  seenri 

lies,  i:n,  i:{i>,  ix\ 

will   inerease  the  cost  of  8U- 
l)ervi8ion,   lli!) 
]\Tntnal  Sa\inj;s   i>anks,  (i(> 

ainonnt   of  lieposils   in,  (id 

condueled    in    interesi    of    de- 
positors,  (!(i 

havo  no  eapita!  atoek,  (K! 

model    for    U.    S.    land    eredit 
instil ntion,   (it! 

not      proilt-sliarinfi^      institn- 
tions,  (ili 

pay    110    dividends    to    sliare 
lioldeis,   (i(! 

Nassau   TMortu^at^e   ami   Savings 
Mank, 
administration  ehavLjes  of,  !)S 
interest   rales  of,   l.'i'J 
h'aliin\al     Hanks, 

dividends  paid   by,  7.^) 

not  asked   to   furnisli   capital 

for  land  banks,  78 
recpiired    to    fnrnisb    capital 
for  l'\>deral  l\eserv(>  Hanks. 
7S 
Natioinil  lUudc  of  lOgypt,  lU) 
closely  oonnccti'd  witii  Stato, 

•21  r 

National   farm   land  banks, 
aulhori/ed  to  maintaii\  agen- 
cies, 'M 
bonds  of,  available  for  what, 
36 


National    land  banks  —  amt. 

cxaniiiH-rs   for,   .'{(1 

«'\emjit  from  taxation  under 
tho  Commission   Hill,  ."{(» 

liniitalion  interest    rale,  :?(! 

limitation  of  adniinisi  ration 
cliarges,    .'{(! 

pi'ohibited  from  establishing 
brand)    banks,   ,'J7 

pi'ovisions  relating  to  <li\i- 
dends  of,  in  tlie  (.Commis- 
sion   Hill,  ,-{7 

restrictions  of   loans,   '.iCt 

ten  or  more  persons  nuiy  or- 
ganize with  capital  stock 
of   m)t   less    than    .$100, 000, 

undci'    the    I'ominission     Hill, 

;ir> 

Nutioinil  Land  Credil  Institnle 
for  small  Landowners  o\' 
Hungary,  .'>2 

annnml.  of  loans  of,  58 

endow  iiu>nt   of,   '210 

is   jmlilic    institution,  58 

loans  and  I'cservcs  of,  1  II 
"National   land    baidc  bonds. 

natiomil  land  banks  author- 
ized   to    issue,    ;{(i 

privileges  of,  under  the  Com- 
mission  l?ill,  .'U» 
National     l''ederalion     of     Hun- 
garian   Land    ('redit    Insti- 
tutions, 

I'ndowment  of,  240 
National     farm     loan     associa- 
tions, 

autliori/ed  by  tlie  ySid)  ("om- 
mittee    Hill,  :17 

antiiori/od  under  the  provi- 
sions of  the  Senat<>  Com- 
mittee  Hill,  40 

jirovisions  relative  to,  under 
the  Sub-Conunitteo  JUll, 
.37 

))rovisiona  in  Sub-connnittee 
Hill  regulating  interest 
rates  of,~  :!!> 

provisions  in  the  Senate 
Conimittoe  Bill  relativo 
thereto,    10 


294 


Index 


National  Grange, 

action  of,  upon  character  of 
our     land     credit     institu- 
tions, 68 
favor  national  legislation  on 
land-credits,  211 
National     Monetary     Commis- 
sion, 
statement  of  Robert  Franz  in 
report  of,  relative  to  Joint- 
stock  mortgage  banks,  61 
National,    state,    and    local   in- 
debtedness.   15-19 
Neely,  Hon.  George  A., 

excerpt  from  speech  of,  190 
New  South  Wales, 

loans  to  farmers,  60 
New  Zealand, 

maximimi     length     of     long- 
time    loans     of    her    land 
credit  institutions,  22 
Noko  Ginko  Banks  of  Japan, 
are    semi-public    institutions, 

60 
capital  and  reserves  of,  114 
Norton,  Hon.  P.  D., 

excerpt  from  speech  of,  187 
Norway,    land    credit    institu- 
tions   of,    58,    59 
mortgage  bank  of  the  King- 
dom of,  59 

"  Officially  endorsed," 

the  three  bills  which  have 
been,  xvi 

what  is  meant  bv,  xvi 
"  Officially  endorsed  "  bills,  35- 
48 

defects  of  and  objections 
thereto,  47,  48 

how  they  agree  with  each 
other,  45-47 

how  they  differ  from  Euro- 
pean land  credit  institu- 
tions, 4-7 

how    they    differ    from    each 
other,  42—45 
Oklahoma, 

high  interest  rates  impede 
progress  of,  vii 


Oldfield,  Hon.  William  A., 
excerpt  from  speech  of,  203 


Parker,  Hon.  Eichard  Wayne, 
excerpt  from  speech  of,  202 
Philippine  Islands, 

aid  to  land  credit,  242 
agricultural  bank  of,  242 
Piatt,   Hon.    Edmund, 

excerpt  from  speech  of,  183 
Political   Parties, 

platform  declarations  in  fa- 
vor of  rural  credits,  xiv 
Population, 

concentration    in    cities,    10, 

228 
problem  of  feeding  our,  xiii 
prospective  growth  of,  xiii 
Powers,  Hon.  Caleb, 

excerpt  from  speech  of,  197 
Principles    of    European    land 

credit   institutions,   20-34 
Private,      profit-sharing      land 
banks, 
not  the  proper  tvpe  of  insti- 
tution for  U.  S.,  49-69 
Progress  in  rural  credit  legis- 
lation,  XV,   3,   4,    173 
Progressive  Party, 

platform  declaration  on  rural 
credits,  xiv 
Prouty,  Hon.  S.  F., 

excerpt  from  speech  of,  186 
Provincial  aid  banks, 

reserve  account  of,   113 
Provincial    Mortgage    Institute 
of  Lower   Austria, 
interest  rates  of.   150 
not   a   profit-sharing  institu- 
tion, 57,  58 
reserve  funds  of,  114,  115 
Profits  of  land  banks, 

should  not  go  into  the  treas- 
ury of  LOS.,  116,  117 
Prussian    Central    Land   Mort- 
gage Company, 
administration     charges     of, 

94,  98,  126 
amount  of  reserve  of,  125 


Index 


295 


Prussian    Central    Land   Mort- 
gage Company  —  Cont. 

average  dividends  of,  125,  12G 

capital  stock,  loans  and  re- 
serve funds  of,  125 

dividends  of,  not  limited,  125, 
126 

history  of,  125 

interest  charges  of,  126,  127, 
149 

reserve  fund  of,  113 
Public  indebtedness,   15-19 

amount  of,   17,   18 

factor  to  consider  in  rural 
credit   legislation,   15-19 

increase  of,   17 

percentage   of,  farmers  must 
pay,  18 
Public  domain, 

wisdom  of  dedicating  to  pro- 
viding homes  for  the  home- 
less, 25 

Queensland, 

agricultural  bank  of,   61 

Kagsdale,  Hon.  J.  W., 

excerpt  from  speech  of,  184 
Railways, 

bonds    and    stock    of,    owned 

by  banks,  14 
number  of  persons  employed 

by,  14 
value  of,  14 
Eedl,  Friedrich, 

describes  land  credit  institu- 
tion of  Lower  Austria,  56, 
57 
Republican  party, 

platform  declaration  on  rural 
credits,  xiv 
Reserve,  guaranty  or  insurance 
fund, 
amount   of,   under   the   Com- 
mission,   the    Sub-Commit- 
tee   and   the    Senate   Com- 
mittee bills,   112,  113 
amount  of,  required  of  land 
banks    under     Commission 
Bill,  112 


Reserve,  guaranty  or  insurance 
fund  —  continued 

amount  of,  required  of  land 
banks  under  Senate  Com- 
mittee Bill,  113 

amount  of,  required  of  land 
banks  under  Sub-Commit- 
tee Bill,  112 

bond  holders  should  have 
prior  lien  on,  118 

bonds  and  debentures  made 
safe  through  accumulation 
of  adequate,  249 

capital  of  bank  should  not 
be  regarded  as  part  of,  109 

inadequacy  of,  109 

losses  of  land  banks  should 
be  met  from,  79 

management  of,  251-253 

national  approjiriations  to, 
250-251 

of  Credit  Foncier  of  France, 
109,   113 

of  the  Prussian  Central  Land 
Credit  Joint  Stock  Com- 
pany,  113 

of  the  provincial  aid  banks, 
113 

of  the  Bavarian  Mortgage 
and  Exchange  Bank,  113 

of  the  Bavarian  Union  Bank, 
114 

of  the  Bavarian  Agricultural 
Bank,   114 

of  the  Noko  Ginko  banks  of 
Japan,  114 

of  the  land  improvement  an- 
nuity banks  of  Germany, 
114 

of  the  Xational  Land  Credit 
Institute  for  small  land 
owners  of  Hungary,  114 

of  the  Provincial  Mortgage 
Institute  of  Lower  Aus- 
tria, 114,  115 

of  the  Hungarian  Land 
Credit  Institutions,  114, 
115 

of  the  Landschaft  of  Saxony, 
116 


296 


Ind 


ex 


Keserve,  guaranty  or  insurance 
fund  —  continued 

provisions  of  the  Commission 
bill  relative  thereto,  37,112 

provisions  of  Senate  Commit- 
tee Bill  relative  thereto, 
41,  113 

provisions  of  Sub-Committee 
bill  relative  thereto,  38, 
39,   113 

primarily  to  meet  losses,  118 

required  of  land  credit  insti- 
tutions of  foreign  coun- 
tries, 113-116 

should  be  under  control  of 
fiduciary  agent,  118 

should  be  made  productive 
through  investment,  118, 
119 

should  be  derived  from  an- 
nual payments  of  mort- 
gagors,  79,  80 

should     bear    ratio    to    out 
standing  bonds,  79,  80,  81 

should    be   held    in    common, 
253-255 
Reusch,   Councilor, 

statement  of,  relative  to  Nas- 
sau Mortgage  and  Savings 
Bank,   152 
Roosevelt,  President, 

country  life  commission,  ap- 
pointed by,  xiv 
Rubey,  Hon.  Thomas  L., 

excerpt  from  speech  of,  192 
Rural  Credits, 

Sub-Committee  on,  appointed, 

XV 

title  of  book,  by  Hon.  Myron 
T.  Herrick,  viii 
Rural  Credit  Legislation, 

actions  of  Commission  and 
Committees  mark  progress 
of,  4 

non-farming  population  in- 
terested in,  xiii 

object  of,  xiii,  9 
Russia, 

aid  of,  to  land  credit  institu- 
tions, 240 


Russia  —  continued 

maximum  length  of  long- 
time loans  of  her  land 
credit  institutions,   22 

Peasants'  Land  Bank  of,  240 

Savings  banks,' 

of  Germany,  55,  56 

of  Italy,  114 
Samiders,  Hon.  Edward  W., 

excerpt  from  speech  of,  200 
Secretary  of  Agriculture, 

report  for  1914  shows  short- 
time  loans  to  farmers,  12 
Secretary  of  the  Treasury, 

under  the  Sub-Committee 
Bill,  may  subscribe  to  the 
capital  stock  and  purchase 
bonds  of  Federal  land 
banks,  39,  40 

under  certain  conditions  may 
subscribe  to  the  capital 
stock  of  Federal  land 
banks  under  provisions  of 
Senate  Committee  Bill,  42 
Senate  Committee  Bill, 

administration  charges  au- 
thorized under,  89-93 

authorized  multiplicity  of 
bond-issuing  institutions, 
120,  121 

bill  reported  favorably  by 
Senate  Committee  on 
Banking  and  Currency,  as 
substitute  for  S.  5542,  3 

creates  private  profit-sharing 
banks,  4,  5 

defects  and  objections  there- 
to, 47-48 

does  not  insure  adequate 
farm  credit,  70 

does  not  provide  ample  re- 
serve fund,  109 

fundamentally  does  not  dif- 
fer from  Commission  and 
Sub-Committee  bills,   4 

how  it  differs  from  the  Com- 
mission Bill  and  the  Sub- 
Committee  bill,  42-45 

how  it  asTees  with  the  Com- 


Index 


297 


Senate  Committee  Bill  —  cont. 
mission  and  Sub-Commit- 
tee bills,   45-47 

in  the  main,  same  as  Hollis 
Bill  S.  7554,  xvi 

outline  of  provisions  in,  40- 
42 

permits  excessive  administra- 
tion charges,  89-93 

provisions  regulating  use  of 
funds  by  Federal  land 
banks,   110,   111 

emallness  of  capital  required 
of  land  banks  under,  73, 
74,  77 

substituted  for  McCumber 
amendment,  3 

total  capital  required  of  dis- 
trict banks  under,  73,  77 
Senate     Committee,     Sub-Com- 
mittee     and      Commission 
bills, 

general  discussion  of,  5-7 
Senate   Committee  on   Banking 
and  Currency, 

report  of,  on  Senate  Bill  5542 
relative  to  government  aid, 
180 
Senate  Bills, 

No.  4246,  XV 

No.  7184,  XV 

No.  5542,  x-A',  180 

No.  7554,  XV 
Sinking  fund, 

definition  of.  29 

payments   into,   invested   for 
benefit     of     borrowers     or 
used    to    redeem    outstand- 
ing bonds,  30 
Sloan,  Hon.  Charles  H., 

excerpt  from  speech  of,  205 
Smith,  Hon.  J.  M.  C, 

excerpt  from  speech  of,  195 
South     German     Land     Credit 
Bank, 

administration     charges    un- 
der. 96,  97 
South  Australia, 

established  state  land-credit 
bank,  60 


Southern  Commercial  Congress, 

takes    the    initiative    in    the 
appointment  of  the  Ameri- 
can commission,  xiv 
State,    national    and    local    in- 
debtedness, 15-19 
Stocks  and  Bonds, 

amount  issued  by  corpora- 
tions, 13 

annual  taxable  income  on,  13 

listed  on  N.  Y.  exchange,  13 
Sub-committee  Bill, 

administration  charges  au- 
thorized under,  89-93 

amount   of   loans   imder,   74 

authorizes  multiplicity  of 
bond-issuing  banks,    120 

creates  private,  profit-shar- 
ing banks,  4,  5 

defects  of  and  objections 
thereto,  47^8 

does  not  insure  adequate 
farm  credit,  5,  70-86 

does  not  provide  ample  re- 
serve fimd.  109,  112,  113 

fundamentally  does  not  dif- 
fer from  Commission  and 
Senate  Committee  bills,  4 

how  it  agTces  with  the  Com- 
mission Bill  and  the  Sen- 
ate Committee  Bill,  45-47 

how  it  differs  from  the  Com- 
mission Bill  and  the  Ben- 
ate  Committee  bills,  42-45 

permits  excessive  adminis- 
tration charges,  89-93 

provisions  of,  regulating  use 
of  funds  by  Federal  land 
banks,  110 

same  as  Hollis-Bulkley,  or 
Bulkley-Hollis  Bill,  xV 

smallness  of  capital  required 
of  land  banks  under,  74,  77 

summary  of  provisions  in, 
37-40 

total  capital  required  of  dis- 
trict banks  imder.  73 
Sub-committee,  Senate  Commit- 
tee  and   Commission   bills, 

general  discussion  of,  5-7 


298 


Ind 


ex 


Sweden, 

aid  to  land  credit  institu- 
tions, 241 

character  of  her  land-credit 
institutions,   58 

maximum     length     of     long- 
time   loans    of    her    land- 
credit  institutions,  22 
Swedish       General       Mortgage 
Bank,  58 

endowment  of,  241 
Switzerland, 

aid  to  land  credit  institu- 
tions, 240,  241 

maximum  length  of  long- 
time loans  made  by  her 
land  credit  institutions,  22 

Taft,  Oren,  Jr., 

views  of,  on  long-time  loans, 
22 
Taft,  President, 

takes  initiative  in  movement 
to  provide  better  credit  for 
farmers,   xiv 
Taxation, 

ad  valorem  rate  of,  18 
burden  on  agriculture,  18 
constitutional  power  of  Con- 
gress to  exempt  land  banks 
from  state  and  local    (Ap- 
pendix),  259-273 
Tenants,  farm, 

number  in  U.  S.,  25 
Thompson,  Hon.  J.   B., 

excerpt  from  speech  of,  186 

Type  of  land  credit  institution, 

general  discussion  of,  49-G9 

United  States  Commission, 
appointment  authorized,  xiv, 

3 
bill  prepared  by,  introduced 

in  Congress,  xv 
delegates  constituting,  xiv 
investigated  rural  credit  sys- 
tems of  Europe,  3 
made  report,  3 
prepared       and       introduced 
land-credit  bill,  3 


United    States    Commission  — 
continued 

report  of,  xiv,  3,  100 

report  of,  opposes  creation 
of  central  land  bank,  100, 
122 

report  of,  recommends  "  com- 
petitive land  banks,"  100 

report  of,  against  central 
banks  authorized  to  issue 
mortgage  bonds,   122 

report  of,  favors  diversity  of 
interest  rates,    160 

report    of,    opposes    govern- 
ment aid,  178 
United    States    Postal    Savings 
Depository, 

trustees  of,  authorized  to 
purchase  Federal  farm 
loan  bonds  under  the  pro- 
visions of  Sub-Committee 
Bill,  39,  217 

trustees  of,  authorized  to 
purchase  Federal  farm 
loan  bonds  imder  the  pro- 
visions of  Senate  Commit- 
tee Bill,  41,  217 
Unlimited  liability, 

a  feature  of  the  old  Land- 
schaften, 

objectionable     to     American 
farmers,  33 
Un  Banco  Hipotecario  Xacional 

(Argentine),   242 
Uruguay, 

guarantees  bonds  of  her  prin- 
cipal land  banks,  242 


Vaughn,  Hon.  Horace  W., 

excerpt  from  speech  of,  194 
Victoria, 

aid  to  farm  credit,  60 
Victoria  Sa\ings  Bank,  60 
Volstead,  Hon.  Andrew  A., 

excerpt  from  speech  of,  204 
Von  Gutstadl,  Baron, 

statement  of,  relative  to  re- 
serve fund  of  the  Land- 
schaft  of  Saxony,  116 


Index 


299 


Wegener,  Herr, 

statement  of,  relative  to  the 
Prussian      Central      Land 
Credit    Joint    Stock    Com- 
pany, 125,  126 
Western  Australia, 

land  credit  bank  of,  60 
Wilson,  President, 

in  message  calls  attention  of 
Congress    to    rural    credit 
legislation,  xiv 
statement    in    message   rela- 


Wilson,  President  —  continued 
tive  to  use  of  the  govern- 
ment's credits  or  funds 
providing  agricultural 

credit,   173 

Wingo,  Hon.  Otis  T., 

excerpt  from  speech  of,  197 

Wolff,  Henry  W., 

statement  of,  relative  to 
value  of  farm  mortgage 
bonds,  159 


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